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: 

UNITED STATES TARIFF COMMISSION 



INFORMATION *v 



CONCERNING 



Free Zones in Ports of the 
United States 



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PRINTED FOR USE OF THE 

COMMITTEE ON WAYS AND MEANS 
HOUSE»OF REPRESENTATIVES 




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WASHINGTON 

GOVERNMENT PRINTING OFFICE 

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COMMITTEE ON WAYS AND MEANS. 

House of Representatives. 

sixty-sixth congress, first session. 

JOSEPH W. FORDNEY, Michigan, Chairman. 



J. HAMPTON MOORE, Pennsylvania. 
WILLIAM R. GREEN, Iowa. 
NICHOLAS LONGWORTH, Ohio. 
WILLIS C. HAWLEY, Oregon. 
ALLEN T. TREADWAY, Massachusetts. 
IRA C. COPLEY, Illinois. 
LUTHER W. MOTT, New York. 
GEORGE M. YOUNG, North Dakota. 
JAMES A. FREAR, Wisconsin. 
JOHN Q. TILSON, Connecticut. 
ISAAC BACHARACH, New Jersey. 
LINDLEY H. HADLEY, Washington. 



CHARLES B. TIMBERLAKE, Colorado. 
GEORGE M. BOWERS, West Virginia 
CLAUDE KITCHIN, North Carolina. 
HENRY T. RAINEY, Illinois. 
CORD ELL HULL, Tennessee. 
JOHN N. GARNER, Texas. 
JAMES W. COLLIER, Mississippi. 
CLEMENT ,C. DICKINSON, Missouri. 
WILLIAM A. OLDFISLD, Arkansas. 
CHARLES R. CRISP, Georgia. 
JOHN F. CAREW, New York. 
WHITMELL P. MARTIN, Louisiana. 



Ernest W. Camp, Clerk. 






16 1920 




] 10955 19, (To race [> 



CONTENTS. 



Page. 

Map of free port of Copenhagen, Denmark Facing title-page. 

Letter of transmittal 5 

Introduction 7 

Definition and purpose of a free zone 7 

The policy of the United States 8 

Inadequacy of bonding and drawback 9 

Bonded manufacturing warehouse 10 

Drawback 11 

Principal imported articles on which drawback was paid 12 

Illustrations of the inadequacy of the present system 13 

The free zone and improved port facilities 15 

Effect of new facilities 15 

The business proper to a free zone 16 

Importance of transshipment trade 16 

Decline of transshipment trade of the United States 17 

Necessity of recovering transshipment trade 17 

Tendency of this branch of trade to concentrate at free ports 18 

Growth of the free port at Hamburg 19 

Spread of the free port policy in Europe 19 

Advantages expected from an American free-zone system 21 

New force to facilitate commerce 25 

Appendix e 27 

3 



LETTER OF TRANSMITTAL. 



United States Tariff Commission, 

Washington, October 9, 1919. 

The Committee on Ways and Means of the 

House of Representatives : 

We have the honor to transmit herewith, in accordance with your 
request dated October 4, 1919, information compiled by the United 
States Tariff Commission on free zones. 
Very respectfully, 

Thomas Walker Page. 

Acting Chairman. 
David J. Lewis. 
William Kent. 
W. S. Culbertson. 
Edward P. Costigan. 



FREE ZONES IN PORTS OF THE UNITED STATES. 



INTRODUCTION. 



The act of September 8, 1916, creating the United States Tariff 
Commission (sec. 702) declares: 

It shall be the duty of said commission to investigate the administration 
* * * of the customs laws of this country * * *, to investigate the 
operation of customs laws, * * * and to submit reports of its investiga- 
tions. 

An investigation of the administration of the customs laws neces- 
sarily compels scrutiny of bonded warehouses, bonded manufactur- 
ing warehouses, and the drawback system as instrumentalities in 
foreign trade. The free zone, as an alternative and supplementary 
device, particularly for the promotion of transshipment in foreign 
trade, merits consideration. 

At the request of the Committee on Commerce of the United States 
Senate, the Tariff Commission has had occasion to investigate free 
zones abroad and the possibility of establishing such zones in the 
United States. 

Hearings were held in New York, San Francisco, Philadelphia, 
New Orleans, and Galveston, and questionnaires were sent to hun- 
dreds of merchants and shippers, to chambers of commerce and 
other commercial organizations in the United States. Interviews were 
had with Government agents and others familiar with the operation 
of free zones in other countries. 

Data procured by the Secretary of State, Secretary of Commerce, 
and Secretary of the Treasury were placed at the disposal of the 
Tariff Commission. Study was made of the history and Workings of 
free zones in Europe and of the laws and regulations controlling 
them. From information thus obtained, the following report is com- 
piled. 

DEFINITION AND PURPOSE OF A FREE ZONE. 

The word " free " in connection with " port " or " zone " is apt to 
be misleading. It is proper to note, therefore, that the term has no 
relation either to port charges or to any policy of " free trade " or 
" protection " in this case. Conventional nomenclature is in this case 
misleading. A " neutral " zone would be more properly descriptive. 
A free port or free zone is a place, limited in extent, that differs from 
adjacent territory in being exempt from the customs laws as affect- 
ing goods destined for reexport; it means simply that, as regards 
customs duties, there is freedom, unless and until imported goods 
enter the domestic market. 

7 



8 FREE ZONES IN PORTS OF THE UNITED STATES. 

A free zone may be defined as an isolated, inclosed, and policed 
area, in or adjacent to a port of entry, without resident population, 
furnished with the necessary facilities for lading and unlading, for 
supplying fuel and ship's stores, for storing goods and for reship- 
ping them by land and water ; an area within which goods may be 
landed, stored, mixed, blended, repacked, manufactured, and re- 
shipped without payment of duties and without the intervention of 
customs officials. It is subject equally with .adjacent regions to all 
the laws relating to public health, vessel inspection, postal service, 
labor conditions, immigration, and, indeed, everything except the 
customs. 

The purpose of the free zone is to encourage and expedite that part 
of a nation's foreign trade which its government wishes to free from 
the restrictions necessitated by customs duties. In other words, it 
aims to foster the dealing in foreign goods that are imported, not for 
domestic consumption, but for reexport to foreign markets, and for 
conditioning or for combining with domestic products previous to 
export. 

Although the free zone is naturally conceived to be on deep water, 
and is commonly regarded as in many ways an extension of the open 
sea, there is none the less a possibility of its establishment in an in- 
terior location where rail and inland waters may bring about the 
assembling of foreign and domestic goods destined for export. It is 
pertinent to note that Switzerland is contemplating the establishment 
of a free zone at Basle, which is close to the industrial districts of 
France, Italy, Austria-Hungary, and the German Empire. x 

THE POLICY OF THE UNITED STATES. 

The policy of the United States has not been unfavorable to the 
kind of commerce that the free zone is designed to promote. On the 
contrary, it has been the obvious intention of the Government to 
relieve reexport trade from the restrictions incident to the adminis- 
tration of the tariff and customs laws, and to that end three institu- 
tions have been devised. 

(1) The bonded warehouse, where goods intended for reexport 
may be entered and held free of duty. 

(2) The bonded manufacturing warehouse, where without pay^ 
ment of duty imported goods may be handled, altered, or manufac- 
tured solely for er.port, either with or without the admixture of 
domestic materials and parts. 

(3) The drawback, which is a repayment of 99 per cent of the 
duties paid on imported goods when they are exported. 

The provision and retention of these three devices show clearly 
that it has not been the purpose of the United States Government to 
place unnecessary obstacles in the way of its citizens when engaged 
in international trade. That such obstacles have arisen is due to the 
fact that the three devices mentioned were inadequate wholly to re- 
lieve foreign commerce from the regulations and restrictions placed 
upon the importation of foreign goods for domestic consumption. It 
would therefore involve no change of policy to supplement these 

1 See page 20. 



FKEE ZONES IN PORTS OF THE UNITED STATES. 9 

devices by a system of free ports or free zones such as have proved 
singularly effective in other countries. 

INADEQUACY OF BONDING AND DRAWBACK. 

There are certain features in the present bonded warehouse and 
drawback systems which detract from their usefulness in facilitat- 
ing foreign, commerce. Some of these features are inherent in the 
nature of the case; others consist of seemingly unnecessary hard- 
ships which can be ameliorated by a revision of the customs laws and 
the regulations accompanying them. 

In accordance with the mandate of the law creating the United 
States Tariff Commission, we have studied the customs administra- 
tive laws, to the end of securing simplification and granting relief 
from what seems unnecessary procedure, and reported on August 
26, 1918, our findings and recommendations. In so far as changes 
suggested in that report affect the procedure under bonding and 
drawback attention is called to the footnotes herein. 

The purposes of the bonded storage warehouse are to relieve im- 
porters from the payment of duty on foreign products that in un- 
changed form are destined for reexport, and also to permit the post- 
ponement of payment of such duties until the time when, during a 
period of three years, the owner desires to remove them. It can not 
aid in expediting the entry and clearance of shipping or the handling 
of merchandise, for vessels must submit to the same formalities and 
requirements, whether they bring dutiable goods or goods to be 
placed in bond, and the goods themselves, whatever their destination, 
must be valued, sampled, weighed, and tested before removal from 
the dock. 

Much of the delay necessarily incident to the proper assessment 
of duties on imports for domestic consumption is equally imposed on 
goods destined to be reshipped. 1 

(a) To protect the public revenue from unauthorized entry of 
goods into domestic trade, the owner of the goods is required, under 
present procedure, to give bond in double the amount of the duty, 
which is forfeited if the goods are stolen, lost, destroyed, or fraudu- 
lently removed. 2 

(b) Even dray age between dock and warehouse must be done 
under bond. 

(c) In addition, from the time they enter port until they are re- 
shipped the goods are under constant customs control and super- 
vision. 

(d) While in the warehouse they must be placed and arranged in 
accordance with certain well-defined regulations, so that they may 
at any time be checked and inspected b,y special agents of the Treas- 
ury Department. 

1 In the case of a ship landing part of its cargo in an American customs port and 
desiring to continue its voyage with the remainder of its cargo to a foreign port, the 
practice and the regulations make entry of such dutiable goods en route a simple matter. 

In the case of a vessel entering a port having part of its cargo destined for reshipment 
to a foreign port, it can transport its reshipment cargo to another vessel through bonded 
lighterage, with merely nominal customs procedure. 

2 The suggested revision of the customs laws relieves the owner of the goods of this 
specific bonding, and looks to the owner of the bonded warehouse for safeguards against 
such removal. 



10 FREE ZONES IN PORTS OF THE UNITED STATES. 

(e) Permits must be obtained for their reception and delivery, 
and strict accounts must be kept of all warehouse transactions. 

(/) Except during the usual business hours the warehouse is 
closed by a Government lock, and to enter it at any other time re- 
quires special permission and payment for the overtime presence of 
a customs agent. 

(g) Handling, sorting, mixing, or repacking of the goods is pro- 
hibited; only where serious damage is threatened can the original 
package be opened, and even then it must be done by special permis- 
sion and under customs supervision. 1 

(h) Subject to these regulations, the expense of which it should be 
noted is made a charge upon the goods, an owner may leave his mer- 
chandise in bond for three years, but at the end of that time if duties 
are not paid they are considered, to use a technical expression, as 
" abandoned to the Government," to be sold by the Government, 
accruing charges and expenses deducted and the remaining proceeds 
turned over to the owner. 2 

The usefulness of the bonded warehouse is sometimes further re- 
stricted by the tariff practice of the country to which bonded goods 
are reexported. Thus, the Canadian law treats goods that have been 
held in American bonded warehouses exactly as if they had entered 
American domestic commerce. When imported from this country 
to Canada, such goods are assessed for duty at the foreign value 
increased by the amount of the duty they would have paid if they 
had entered the United States for domestic consumption. The effect 
of this regulation finds illustration in the business of a certain Ameri- 
can firm dealing in foreign embroideries. In order to fill a Canadian 
order, this firm found it necessary to send goods from a bonded 
warehouse in New York to England, where the goods were reinvoiced 
and thence shipped direct to Canada. 

BONDED MANUFACTURING WAREHOUSE. 

The mere statement of the regulations sufficiently indicates the 
limited usefulness, so far as export trade is concerned, of the bonded 
storage warehouse. Even more stringent are those applying to the 
bonded manufacturing warehouse. In the latter institution foreign 
materials may be entered free of duty and worked up into manufac- 
tures ready for consumption. 

(a) Production can be carried on in such a warehouse for export 
only. With a few special exceptions, the output can not be disposed 
of in the domestic market, even on paynfent of duty. 3 The most im- 
portant exceptions are metal from ore smelted in bond, and cigars 
" made in whole from tobacco imported from one country." Minor 
exceptions are found in a provision for the entry of Mexican peas, 
or garbanzo, which have been cleaned at such warehouses, and in 
the permission, to sell for domestic consumption by-products and 
waste arising in the manufacture of goods for export, provided duty 
is first paid on such articles as if imported from abroad. 

1 The proposed revision provides permission for repacking, mixing, blending, cleaning, 
sorting, and in fact practically every process short of actual manufacture. 

2 Under the proposed revision the President is given the power to extend this three-year 
term under war or any other emergency. 

3 The proposed revision permits withdrawal for consumption of all goods produced from 
bonded manufacturing warehouses. 



FREE ZONES IN PORTS OF THE UNITED STATES. 11 

(b) Before beginning operations the proprietor must file with the 
Treasury Department and with the collector of customs a statement 
of all the articles he intends to manufacture, giving the names of the 
articles, the exact kind and quantity of ingredients, and the formula 
of manufacture, and he must adhere rigidly to the formulae set 
forth. 

(c) He must also give bond in double the value of the goods he 
intends to produce. 

(d) From beginning to end materials and operations are under 
strict customs supervision. A multitude of restrictions make the 
procedure intricate and expensive, and the penalties for violation 
are very heavy. Only in the most highly standardized industries is 
it possible to avoid frequent disputes and misunderstandings. 

DRAWBACK. 

The law authorizing what is known as drawback permits an im- 
porter, instead of placing his goods in bond, to pay duty on their 
entry and then to draw back from the Treasury on their reexporta- 
tion 99 per cent of the amount paid. This provision, of course, can 
not any more than the bonded Avarehouse relieve commerce from 
the delays and other burdens incident to customs enforcement. The 
intent of the law is to aid production for foreign markets by reliev- 
ing from customs dues imported materials that are manufactured 
or finished in this country and then shipped abroad. But the relief 
thus afforded, except in the sugar and tin-plate industries, has been 
relativeh r small, as may be seen from the following table: 



12 



FREE ZONES IN PORTS OF THE UNITED STATES. 



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FREE ZONES IN PORTS OF THE UNITED STATES. 13 

It is obvious from these figures that scores of industries in this 
country that now use foreign materials to produce goods for export 
do not exercise the drawback privilege at all. The reason is that, 
for the prevention of fraud, the privilege is so hedged about with 
exacting and intricate regulations that the amount of the draw- 
back very often does not pay for the labor and cost of collecting it. 

(a) To prove the identity of goods on which drawback is claimed 
requires a minute checking of imported elements entering into 
the manufacture, with the right and oftentimes with the need of 
examining into factory management sometimes threatening the dis- 
closure of trade secrets of importance. So complicated is the pro- 
cedure in making claim and proving identity that many producers 
do not find it worth while to apply for drawback at all. Large-scale 
industries, like sugar refineries and those compelling the use of large 
quantities of tin plate, go to the expense of employing experts per- 
manently to look after their drawback interests. 

(b) Every step must be taken subject to customs inspection, and 
oaths are required from importers, superintendents, and exporters. 

(<?) Even after reshipment, before drawback can be recovered, 
evidence must be given of the actual landing of the goods in a foreign 
country. 1 

(d) At best, under the smoothest operation of the law, that part 
of the owner's capital advanced in payment of duties is tied up 
in the Treasury from the time the goods are imported until 30 days 
after they are reshipped. 

ILLUSTRATIONS OF THE INADEQUACY OF THE PRESENT SYSTEM. 

At the hearings conducted by the Tariff Commission and in the 
replies to its questionnaire numerous instances were adduced illus- 
trating the inadequacy of the bonding and drawback system. To 
a few of these attention may be here directed. 

Rice milling is an industiy for the successful prosecution of 
which all conditions appear to be favorable in the United States 
except a sufficient supply of raw material. The industry is now 
limited almost entirely to the preparation of the domestic product 
for domestic consumption, and this does not furnish full employ- 
ment. It requires expensive specialized machinery and much skilled 
labor that must be engaged by the year. But testimony was pre- 
sented showing that the largest mills are idle much of the time, be- 
cause the domestic crop can keep them in operation for only half 
the year. Efforts have been made to use the idle months in cleaning 
and milling oriental rice, the supply of which is very large, for 
reexport to the West Indies and Spanish America. To do this work 
profitably the rice must be imported in full ships' cargoes and 
handled in bulk through grain elevators. These cargoes usually 
are about 6,000 tons, and as there is an average duty of one-half 
cent a pound on rice, the duty that must be paid on a full cargo is 
$60,000. The importer, of course, would be entitled to a drawback 
on such quantity of the rice as was reexported; but it was the unani- 

1 Under the proposed revision of the customs laws the landing certificate requirement 
is abolished, excepting when, in specific instances for reasons assigned, the Secretary of 
the Treasury shall call for such procedure*. 



14 FREE ZONES IN PORTS OF THE UNITED STATES. 

mous testimony of the mill officials interviewed that the business 
had to be discontinued because of the difficulty, delay, and expense 
of securing the drawback. 

Again, it was found that imported flowers and feathers and imita- 
tion feathers are extensively used in this country for trimming 
women's hats, the model or frame of which is an article of domestic 
production. Also Panama and imitation Panama hats for the use 
of both men and women are imported from Central and South 
America and finished in the United States with the use of domestic 
materials. The industry has been almost entirely limited to sup- 
plying the domestic market, for our manufacturers have found 
themselves hampered in competing for foreign markets by the re- 
strictions of our bonding and drawback system. 

The effect of these systems on dealers in highly finished goods is 
perhaps best seen in the case of laces and embroideries. These are 
manufactures for which Spanish America offers a large and lucrative 
market which heretofore has been almost entirely supplied from 
Europe. Commodities of this character are apt to be included in the 
same order with a variety of other goods, and the order naturally 
goes to the dealer who can fill it as a whole at the lowest price, in the 
shortest time, and in the most convenient form. The order often in- 
cludes specialties covered by trade-mark that are produced in dif- 
ferent countries. To engage successfully in this trade, therefore, the 
merchant must be able not only to furnish the goods of his own 
country but also to assemble, sort, and repack foreign merchandise 
for convenient delivery. This kind of commerce American mer- 
chants are precluded from entering except under the greatest dif- 
ficulties. In many parts of South America merchandise has to be 
transported for long distances in carts or on the backs of mules or 
llamas. It must be packed, therefore, with the least possible weight 
and in such form that the packages may be evenly balanced. Further- 
more, dry goods are usually dutiable in those countries at specific 
rates by weight, so that the lighter the carton or covering the lower 
the duty will be. But our bonding system does not permit the orig- 
inal packages received from Europe to be broken and rearranged. 
And if American manufacturers of clothing use imported laces and 
embroideries in making women's wear, the difficulty of identification 
and the expense of collecting a drawback are so great that when they 
export such goods they frequently prefer to forego the claim. One 
American exporter testified that his firm found it necessary to take 
goods from bonded warehouses in the United States and ship them 
to a West Indian port where they might be repacked and thence for- 
warded to destination. 

Such are specific illustrations brought out at the healings and in 
the correspondence conducted by the Tariff Commission showing 
the need of American industry and commerce for more liberal ar- 
rangements in handling and transshipping foreign products. Before 
pointing out how this can be accomplished through the establishment 
of free zones, iit should be said with the greatest emphasis that the 
advantages to be enumerated ean be attained in full measure only 
through the observance of certain prerequisites such as are set forth 
in the bill, comment on which forms the second part of this report. 
The free zone or port that is here contemplated is one of the char- 
acter provided for in that bill. 



FREE ZONES IN PORTS OF THE UNITED STATES. 15 

THE FREE ZONE AND IMPROVED PORT FACILITIES. 

The most important prerequisite is that such a port shall provide 
properly coordinated, modern, and efficient physical facilities for the 
lading and unlading of cargoes, the entry and clearance of vessels,, 
and the handling of merchandise. In the main, wharves, docks, 
piers, terminal facilities, and other necessary features of American 
ports have developed with few exceptions by a process of planless 
accretion. They are exposed to frequent fluctuations between slack- 
ness and congestion, and recent experience has proved them alto- 
gether unprepared for emergency. The uncertainties of business 
discouraged the installation of costly modern equipment, and this 
in turn increases the direct labor charge and adds to the expenses of 
trade. The privileges of a free zone, through the promotion of 
commerce in regions naturally adapted for it, would attract capital 
to the creation of the facilities that should in every case be made an 
indispensable prerequisite. The detailed specification of these facil- 
ities should be made by the Secretary of Commerce, and might well 
vary somewhat from port to port with a view to proper adjustment 
both to topographic conditions and to the volume and character of 
the commerce to be handled. In the judgment of the Tariff Com- 
mission it is highly important that the necessary capital should be 
provided, not by the Federal Government, but by the State or 
municipality within which the free zone is established. The neces- 
sity of meeting the cost of construction and equipment from local 
resources would go far to limit the application for free zone privi- 
leges to those ports where there is a prospect that the acquisition of 
them would be justified by the results; while, on the other hand, 
the hope of securing a Government appropriation would attract an 
application from every handling place on the coast. 

EFFECT OF NEW FACILITIES. 

The subject of providing new facilities can not be dismissed with- 
out reference to its probable effect on facilities already existing and 
the investments that haA^e been made in them. The prospect that a 
publicly financed free zone with its elaborate equipment would de- 
stroy the usefulness of the facilities already constructed at great cost 
in our ports would arouse a widespread and not unjustified opposi- 
tion to its establishment. The inquiries of the Tariff Commission, 
however, lead to the belief that no such destruction would be en- 
tailed. The experience of foreign countries has been that the growth 
of business in a free zone has been accompanied by a material al- 
though smaller increase in the use also of the previously existing 
facilities. The trade, for example, in the free port of Copenhagen 
grew in seven years by 400 per cent, while at the same time the 
trade of the old, or customs, port not only escaped a loss, but actu- 
ally showed some gain. The purpose of a free port is not to divert 
business from these that now transact it, but to provide for new busi- 
ness that under present circumstances can not grow as it might. 
The testimony of men familiar with present arrangements was em- 
phatic to the effect that there would be little or no diversion of the 
passenger traffic or of the handling of dutiable goods and of the few 
goods that now make substantial use of the drawback and bonding 



16 FREE ZONES IN PORTS OF THE UNITED STATES. 

system. Some diversion, indeed, might well be wished for by all 
concerned, in view of the congestion witnessed in recent months at 
American ports and the obvious incapacity of existing facilities to 
handle the present commerce with convenience and dispatch. 

THE BUSINESS PROPEK TO A FREE ZONE, 

The questions now arise, Whence is the new business destined for 
a free zone to come, and in what way will it profit the country? 
Partial replies have already been suggested in what was said above 
with regard to the bonding and drawback systems. The business 
proper to a free zone consists in receiving and manipulating foreign 
products and reshipping them in the direction and at the time to take 
advantage of the best foreign markets. This is not only a profitable 
business, it is also becoming a necessary business to our industrial 
growth. For however wide the range of goods we produce and 
however effective our methods of production, we can sell our products 
to best advantage only when the purchasers are able to pay for them 
with products of their own. If we do not accept their products, 
they must sell them in some third country and transfer to us the 
credit they thus acquire— unless, indeed, they forego buying our 
goods at all and make their purchases in the country where they 
make their sales. 

IMPORTANCE OF TRANSSHIPMENT TRADE. 

In the modern maritime nations the business of assembling and 
preparing the products of foreign countries for transshipment and 
redistribution abroad has grown steadily in volume and importance. 
Statistics are not available for an accurate statement of the amount 
of goods thus handled, but estimates putting their annual value in 
normal years at approximately $4,000,000,000 do not seem exagger- 
ated. They consist in the main of the raw materials of those coun- 
tries that have not attained a high stage of industrial development 
and that are dependent on the maritime nations for the transporta- 
tion of their products and the supph T of their necessities. To some 
extent, however, manufactured and partly manufactured goods enter 
the trade. This occurs when the country conducting the trade does 
not itself produce the particular manufactures that are demanded. 
In such a case the goods are purchased where they are produced, 
transshipped in the trading country, and sold where they are wanted. 
It is well known that only by such a triangular route and through the 
hands of foreign dealers have many American specialties entered the 
markets of South America and the Orient. Obviously, a country en- 
gaged in this business benefits from it in a number of ways. It 
receives the profits on merchandising and transportation: its pro- 
ducers have first choice at lowest prices of the materials handled; 
and it can sometimes gradually build up a preference for its own 
products in supplying foreign markets. How small is the share of 
the United States in these benefits is indicated by the fact that the 
transshipment trade has not been deemed important enough to de- 
serve separate statistical statement. In the annual reports of the 
Bureau of Commerce and Navigation, table 8 combines the value of 



FKEE ZONES IN PORTS OF THE UNITED STATES. 17 

the goods transshipped and the value of goods in transit that merely 
cross United States territory in bond from one foreign country to 
another. All together in 1914 they amounted to the considerable 
value of $198,303,232, but not less than $155,847,478 of this was for 
goods in transit to and from Canada. 

DECLINE «OF TRANSSHIPMENT TRADE OF THE UNITED STATES. 

Our part in this business has not always been so insignificant. A 
little more than a century ago Europe was involved in a war almost 
as paralyzing to commerce as that recently ended. During its con- 
tinuance, except for the period of our second war with England, 
not only the trade of this country but a great part of the whole sea- 
borne commerce of the world was conducted by American merchants, 
carried on American ships, and financed by American capital. After 
the coming of peace, however, in spite of the swift growth of inter- 
national trade, her share of it steadily diminished, until in the pres- 
ent generation her ships have carried less than 10 per cent even of 
her own foreign commerce. Numerous causes contributed to the 
decline; prominent among them, of course, was the strengthening 
competition in time of peace of those maritime countries whose 
absorption in war had given America her easy supremacy. Chaotic 
banking conditions in this country also long played an equally im- 
portant part. An added disadvantage was found in the change 
from wooden ships, which had been built cheaply in America and 
of better quality than elsewhere, to iron and steel vessels, in the con- 
struction of which American enterprise was lagging. Finally, dur- 
ing the Civil War the hazards of foreign trade led not only to the 
wholesale transfer of American tonnage to foreign registry out also 
to the almost complete withdrawal from that field of American 
capital and enterprise. But while these and' other things contrib- 
uted to the same result, the most potent and continuous cause for 
the decline of maritime commercial interests in the United States lay 
in the more attractive opportunities found in other fields of indus- 
try. The settlement of the interior, the growth of manufacturing, 
the building of railroads, the development of internal resources of 
many kinds created a demand for labor and capital a'nd offered re- 
wards that foreign trade under competitive conditions did not afford. 
Commercially the United States became passive instead of active. 
Exports and imports, it is true, continued to grow ; but the manage- 
ment, the direction, the transportation, and other mercantile opera- 
tions connected even with her own trade, together with the profits 
arising from them, in large measure passed to foreigners, while her 
share in other branches of international trade was almost entirely 
lost. In the early years of the nineteenth century the value of for- 
eign products reexported from America was nearer a half than a 
third of the value of her total annual imports; in the early years 
of the twentieth century the ratio was only about 3 per cent. 

NECESSITY OF RECOVERING TRANSSHIPMENT TRADE. 

The chief causes for the decline of American maritime enterprise 
now no longer operate. The outbreak of the present war has again 

140955—19 2 



18 FREE ZONES IN PORTS OF THE UNITED STATES. 

forced the United States into a position of prominence in interna- 
tional trade. It has devolved upon this country to find capital, to 
furnish ships, to modify her own production, and to assemble and 
redistribute many products of other lands. Widespread interest has 
been aroused and considerable investments have been made in this 
long-neglected field. For the promotion of foreign trade new cor- 
porations have been formed and old ones expanded, a great merchant 
marine is under construction, the banks have extended their foreign 
agencies and created new ones ; indeed, it is not too much to say that 
American business as a whole tends to be reorganized on the basis of 
a permanent, widespread and varied foreign commerce in which 
Americans shall be active participants. Even before the war it was 
already generally recognized that industry was becoming constantly 
more dependent on foreign markets, and that to secure and main- 
tain these it was necessary not only to provide goods that foreigners 
might want, but also to furnish in return a market for their products. 
And since for many of these products there was no demand in the 
United States, it followed, if they were to be received by American 
merchants in exchange for American goods, that these merchants 
should find a way to dispose of them in some other" country where a 
demand did exist. It was already clear that industrial prosperity 
at home would be advanced if this country should play a larger part 
in the organization and conduct of international commerce as a 
whole, and this larger participation appeared equally desirable under 
conditions of peace as in time of war. The recent war, therefore, 
by no means created the need for commercial expansion, but it has 
emphasized the need for it and has powerfully stimulated the growth 
of it. It has enabled, and indeed compelled, the United States to 
occupy a place in the world's commerce the retention and improve- 
ment of which will greatly contribute to her future welfare. 
Thoughtful men everywhere now see in the expansion of our foreign 
trade an added benefit to our internal prosperity. 

TENDENCY FOR THIS BRANCH OF TRADE TO CONCENTRATE AT FREE PORTS. 

During the nineteenth century, after the withdrawal of the United 
States from this branch of trade, it tended to be concentrated for the 
Occident at the ports of the English Channel and the North Sea and 
for the Orient at Hongkong and Singapore, and it is significant that 
in^these ports commerce with all nations was most free and least ham- 
pered by customs regulations. It can not be claimed, of course, that 
their commercial prosperity was due solely or even mainly to free- 
dom from this particular handicap. Many conditions must be fa- 
vorable and many forces must combine for the building up and 
maintenance of a great foreign commerce. But it is a field of enter- 
prise in which competition appears in its most active form, and ex- 
perience in the last 50 years clearly shows that the absence of artificial 
restrictions will frequently suffice to direct the flow of international 
trade. Thus while Fiume, Trieste, Pasajes in Spain, and even 
Dantzig on the Baltic did not achieve great commercial expansion 
by virtue of their free-port privileges, yet the beneficial influence of 
similar privileges at Hamburg, Copenhagen, and elsewhere has been 
great and unmistakable. 



FREE ZONES IN PORTS OF THE UNITED STATES. 19 

GROWTH OF THE FREE PORT AT HAMBURG. 

Of modern free ports, their management, character, and success- 
ful operation, Hamburg furnishes the best illustration. This city 
has always been dependent on its commerce, and as long as it was 
an independent republic it arranged its customs regulations with a 
view to the least possible interference with trade compatible with 
fiscal requirements. The formation of the German Empire in 1871, 
with a tariff system common to all the component States and admin- 
istered by the Imperial Government, threatened to destroy Ham- 
burg's prosperity and to divert much of her commerce to the rival 
ports of England and Holland. The city, therefore, long refused to 
enter the Imperial customs union. 

In 1882 a compromise was affected, by the terms of which Hamburg- 
was permitted to maintain an area, accessible by both land and water, 
where goods from all parts of the world might be landed, handled, 
and reembarked without any interference whatesoever from customs 
officials. This area was to be a free port, and only when goods passed 
through its gates into the interior of the country were the duties 
levied under the German tariff to be collected on them. In addition 
to the privilege thus accorded, Hamburg received a cash payment of 
40,000,000 marks, and the money was used by the municipal authori- 
ties to improve the site selected on the river bank, and to construct 
facilities for the most efficient handling of a great commerce. They 
planned largely, anticipating rapid growth, but development so 
far outstripped their expectations that several times within a gener- 
ation both space and equipment had to be greatly increased. With- 
out doubt the growth was due in largest measure to the economic de- 
velopment of the German Empire, for which Hamburg serves as 
the chief port, and the direct trade between Germany and foreign 
countries is conducted, of course, under the ordinary customs regu- 
lations. But equally, without doubt, it was the creation of the free 
port that enabled the city to become an important center for the 
commerce between other nations and a great consignment market 
for products from almost all parts of the world.- Unfortunately, 
official statistics make no distinction between German goods and 
foreign goods shipped from the port, but a careful estimate for the 
last year before the war puts at $200,000,000 the value of the foreign 
products exported. These figures illustrate only the importance of 
the transshipment trade; they give no indication of the advantage 
to German manufacturers of having at their door a convenient as- 
sembling place for the materials which they need nor of the degree to 
which the markets for German goods were extended through Ham- 
burg's ability to receive and dispose of the products of other coun- 
tries. 

SPREAD OF THE FREE-PORT POLICY IN EUROPE. 

It is of interest to note the spread of the free-zone idea and free- 
zone practice throughout the world. Hamburg has, of course, been 
closed in by war conditions. No statistics are available since 1907 
of that most important exponent of the policy. There are available 
from Copenhagen, next in importance, statistical tables of 1910. 



20 FREE ZONES* IN PORTS OF THE UNITED STATES. 

There the free port was immediately found to be too small for the 
commerce produced, and there is continuing enlargement. 

Spain, in 1914, authorized a free zone at Cadiz. Barcelona se- 
cured the same privilege in 1916, Bilbao and Santander in 1918. 
There has been a temporary s'etback in improving the zones under 
the privilege, owing to the fact that the Spanish Government re- 
served the right- to a revocation at any time and did not offer tehe. 
security of a term grant. 

In the case of Barcelona this condition has now been satisfactorily 
overcome and funds have been appropriated and plans approved 
for the early establishment of the free zone in thaj; port. The privi- 
lege has been granted, though not yet acted upon, to Bilbao, San- 
tander, Vigo, and Corona under similar conditions. 

Sweden, anxious to share in the transit trade of the Baltic, opened 
a free zone at Stockholm on June 1, 1919, and is preparing to estab- 
lish free zones at Gothenburg and Malmo. 

France has long been agitating the question and has, during 
many years, received reports and has had bills introduced, which, 
up to the present time, have not been enacted into law. The most 
recent report received through the State Department is to the effect 
that the matter is still under serious consideration. A consular re- 
port from Havre states that it is anticipated that Havre and Mar- 
seilles, among other French ports, would be equipped with free-zone 
privileges, with the probable exclusion of manufacturing. 

Norway is shown by our consular reports to be interested in estab- 
lishing a free port at Christiania, Bergen, Christiansand and 
Trondhjem. 

Portugal has authorized the privilege by law, and the latest infor- 
mation was to the effect that establishment was being made at 
Lisbon. 

Mr. H. R. Geddes, the managing director of the Continental Daily 
Parcels Express and Northern Traffic (Ltd.) and one of the leading 
commercial experts in Great Britain, says : 

Sweden proposes to establish free ports at Gothenburg and Stockholm, and 
Norway is discussing the possibilities as to Christiania. Denmark is making 
preparation on a large scale to retain the increased trade done at Copenhagen 
and to control the tremendous trade in the Baltic and served by the Gulfs of 
Bothnia and Finland for Scandinavia and Russia. The German ports, however, 
will make it as uncomfortable as possible for Denmark. 

. Russia, under the old regime, proposed to establish a free port at Novy Port, 
Petrograd. This scheme is probably now in abeyance. 

Switzerland is thinking very seriously of inaugurating a free area at Basle and 
catering for the transit trade of France, Italy, and the German and Austrian 
Empires. A glance at the map would show the possibilities of this scheme. 

Great Britain is seriously considering the establishment of free 
zones throughout the Empire. There have already been great trans- 
shipment agencies free from customs interference at Hongkong, 
Gibraltar, and other points, but these differed from the technical free 
zones established under more rigorous tariff systems. 

Low-tariff countries and countries having few articles on the duti- 
able list have not needed such installation, as was evidenced in the 
trade of Belgium, Holland, and the British Isles ; but Great Britain, 
now faced with the need of larger revenue, with the possibility of 
higher and more inclusive tariffs, feels the need of customs immunity 
in her transshipment trade and is considering the establishment of 



FKEE ZONES IN PORTS OF THE UNITED STATES. 21 

free zones as discussed in this report. A parliamentary return, dated 
March, 1918, by a departmental committee appointed by the board of 
trade, concerning itself with the shipping and shipbuilding industries 
after the war, states (p. 119, par. 352 of its final report, under the head 
of li General recommendations ") : 

Free ports. — In this connection reference must be made to the free-port system 
prevailing in many foreign countries. Should it be decided, whether for revenue 
or other purposes, to extend widely the range of duties on imported articles, the 
question of creating similar free ports in the United Kingdom would become a 
matter of pressing importance. It is essential that the position of the United 
Kingdom as a great transshipment and entrepot center should not be impaired, 
and the best means of safeguarding these national interests would undoubtedly 
be by the establishment of free-customs areas on a large scale at the ports 
principally concerned. 

In this connection attention is called to the information afforded by 
Mr. Geddes's speech before the Dover (England) Incorporated Cham- 
ber of Commerce on February 14, 1918, printed in the Appendix 
(p. 88). 

ADVANTAGES EXPECTED FROM AN AMERICAN FREE ZONE SYSTEM. 

Detailed statements of the advantages to be expected from a free- 
zone system were given by various business interests that would 
be affected by its establishment, in answer to a questionnaire sent 
out by the commission. The more important of these advantages 
may be summarized under the following heads: 

(1) In simplifying entry and clearance. — Time lost by merchant 
vessels, whatever be the cause of it, is always costly, and owners in 
forecasting profit or loss must reckon closely the probability of 
delays that involve the idleness of ship and crew. It is well known 
that such delays, varying from several hours to several days, are 
imposed by customs procedure on vessels entering and clearing at 
American ports. Officials and ships' officers of regular lines, it is 
true, acquire a familiarity with the regulations that enables them 
under normal conditions to reduce the delay to a few hours; but 
iLe typical commerce carrier, the "tramp steamer," the chartered 
vessel, that is free to seek business wherever its services are in de- 
mand, finds the delay much more serious, and in the event of mis- 
understanding and a consequent failure to follow the prescribed pro- 
cedure the owners incur penalties that may change the result of a 
voyage from profit to a loss. The formalities for making entry must 
be rigorously discharged, and the regulations for handling and un- 
loading cargo are strict and detailed. All vessels immediately on 
arrival are boarded hy customs inspectors and remain in customs 
custody, together with their cargoes, until they are unladen and 
cleared. Vessels designated as common carriers by the Secretary of 
the Treasury, upon giving bond and paying double compensation 
for the extra time of weighers and inspectors, may, if they wish, 
receive or discharge cargoes at night and on Sundays and holidays ; 
but otherwise loading and unloading are permitted only during the 
usual business hours in open day. The entry of goods is little less 
technical and time consuming than the entry of vessels. Even after 
it has left the ship dutiable merchandise can not be removed from 
the wharf or place where it is landed until it is weighed, gauged. 



22 FREE ZONES IN PORTS OF THE UNITED STATES. 

or measured, or — in' the case of spirits and sugars — until the proof 
or quantity and quality are ascertained and properly marked. Dis^ 
putes are inevitable with regard to such matters as valuation, ob- 
literated marks, damaged goods, broken packages, and they neces- 
sarily impede the smooth flow of goods away from the piers. This 
tends to cause congestion, which in turn delays further discharge 
of cargo and adds to costs and charges. The situation is sometimes 
made worse by practices that under the present system it is difficult 
to prevent. A committee of the San Francisco Chamber of Com- 
merce reports: 

In our experience in San Francisco we found that many times consignees are 
unfair in a practice of making the customhouse an excuse for keeping cargoes 
on the wharf longer than they should be kept; and freight congestion is al- 
leged to be due to inadequate wharf arrangements, when, in fact, it is fre- 
quently a case of juggling in order to secure free storage on the piers. It is 
a very serious and costly detriment to a port to have the wharves piled up 
with goods because real and frequently pretended customhouse requirements 
compel it. 

It is too obvious to require discussion that shipping is aided by 
prompt docking, the uninterrupted discharge of cargo, quick lading, 
and an early clearance. The time and expense thus saved are a 
weighty argument for a free zone. 

(2) In equalizing inbound and outbound traffic. — Adequate facili- 
ties and simplicit}^ of regulations for entry and clearance will do 
much to stimulate shipping at American ports. But for the stimu- 
lation to be effective and to give practical aid to the growth of com- 
merce there must be reasonable certainty that ships will find cargoes 
both in and out bound. In the lack of this certainty the trade of the 
United States differs in marked degree from that of other highly 
developed nations. It is true that the import and export trade of 
this country, taken as a whole, is very great. But in no direction 
is there any reasonable balance of the tonnage required for the in- 
bound and that required for the outbound traffic. Thus in the trade 
with Europe exports require much more shipping than imports. 
Manjr ships, therefore, must come from Europe in ballast, or take 
cargoes under competitive conditions that make inbound freight 
rates relatively low; and it follows that all or the greater part of 
the cost of the whole voyage must often be made up by the charges 
imposed for transporting American merchandise to Europe. In our 
trade with South America the situation is very different, for the in- 
bound tonnage is markedly greater than that outbound. Consequent- 
ly, except for the few regular liners engaged in this field, ships 
bringing South American produce must return in ballast, or must 
ply from port to port seeking a precarious cargo. In preference to 
either of these alternatives they usually load in the United States 
for England, Hamburg, or Copenhagen, where they expect to find 
with reasonable certainty a full cargo back to South America. Simi- 
lar inequalities exist in our commerce with many other parts of the 
world. With some countries, indeed, whose produce we buy and 
where a demand exists for American goods, we have little or no 
direct communication. Our trade with them is almost entirely con- 
ducted through transshipment in foreign countries, an indirect 
method that both increases its cost and subjects to foreign control 
its volume and variety. 



FREE ZONES IN PORTS OF THE UNITED STATES. 23 

(3) In facilitating dealings in foreign products. — It is obvious 
that relief from the inequalities described — the maintenance of reg- 
ular and adequate transportation facilities and the establishment of 
moderate and stable freight rates — can come only through the growth 
at American ports of traffic that moves both inward and outward on 
'the same course. The free zone will promote this growth by giving 
greater freedom to the import of goods not for domestic consumption 
but for transshipment to other countries. We should provide full 
cargoes for ships wishing to clear for countries to which our exports 
of domestic merchandise are as yet small and irregular, in order that 
such exports may find ready and cheap transportation ; and we must 
receive full cargoes from other countries to which we sell in larger 
volume. Preliminary to reshipment foreign goods thus imported 
frequently require sorting, cleaning, blending, repacking, and other 
forms of manipulation to adapt them for the market to which they 
are to be consigned. For such work, as has been already pointed out, 
the bonded warehouse and the drawback are inadequate and, in a 
measure, inevitably so. And the free zone appears to offer the only 
sufficient means of permitting it and, at the same time, of protecting 
the revenue and maintaining such limitations as the Government sees 
fit to fix for the import of foreign goods for domestic consumption. 

(4) In stimulating certain branches of manufacturing . — Less im- 
portant than the preparation of foreign merchandise for reshipment, 
but not altogether insignificant, is the opportunity the free zone 
affords for the manufacture of export goods partly from domestic 
and partly from foreign raw materials. Many such goods are now 
made in this country, but owing to the duty on the foreign materials 
relatively few of them can be exported in competition with foreign 
producers. It is impossible precisely to specify in advance the 
branches of manufacturing that would use the opportunit}^ thus 
offered. In general, aside from industries peculiarly related to the 
repair and outfitting of ships, its chief attraction would be to those 
manufacturers in the cost of whose finished products the cost of 
dutiable foreign materials forms an important part. There readily 
come to mind under this head such products as cigars, straw hats, 
certain chemicals, medicinals, and fertilizers, certain kinds of con- 
fectionery, brushes made of prepared bristles, preparations of fruit, 
rice, -and other foodstuffs ; but it is fairly certain that many such 
commodities would not be produced in the free zone. For some of 
them production for export has been fairly stabilized under the 
bonded warehouse and drawback systems. 

In the case of others the inducements of the foreign market alone 
are not enough to justify investments for their production, and their 
entry into the domestic market would be subject to restrictions iden- 
tical with those imposed on foreign manufactures. The manufac- 
turer proposing to enter the free zone would have to base his calcu- 
lations of profit on the prospect of manufacturing solely for export. 
This is practically a new field for American capital and enterprise, 
and before entering it a close scrutiny would be necessary of the 
problems and possibilities peculiar to each separate branch of pro- 
duction. In all likelihood, therefore, its development would be slow 
and long confined within narrow limits. Even with such a prospect, 
however, it is not without importance. It should be remembered 



24 FREE ZONES IN PORTS OF THE UNITED STATES. 

that the list is lengthening of American manufactures made up in 
large measure of foreign materials and parts. Not a few manufac- 
turers of such commodities have already found it expedient to estab- 
lish branch plants abroad, a practice that is strongly marked in the 
case of sewing machines, typewriters, shoe machinery, and other 
typically American products. While it is true that the practice is* 
due chiefly to foreign patent legislation, foreign duties on finished 
manufactures, and some other causes that operate in special cases, it 
is also true that it is often promoted by the American duties on 
materials and parts that have to be imported. It is not unreasonable 
to believe, therefore, that by some manufacturers the free zone would 
be preferred to a foreign location for branch plants. " Broadly 
speaking," says an experienced American producer, " my idea is that 
small parts, requiring extensive labor application in creating the 
articles, could be made in Europe and the heavier and broader- work 
done here; and instead of the American industry losing the entire 
article, part of the article would continue as American manufacture, 
and the profit accruing on the small parts — which would be assembled 
in this zone and placed in the machine — would also naturally remain 
as American capital." 

(5) In stabilizing transshipment trade lender varying tariff poli- 
cies. — Of all the advantages to be expected from a free-zone system 
that which might be looked for with the greatest certainty would 
arise through freeing the transshipment trade from the unsettling 
effects of tariff charges. At present American merchants importing 
foreign goods with a view to reshipment abroad must reckon the costs 
entailed by the bonding and drawback systems, and these costs neces- 
sarily differ with every change in the rate of dut} 7 . , An impending 
tariff revision, therefore, causes wide fluctuations and sometimes a 
complete interruption of this business, and much time elapses before 
broken connections can be restored. Any uncertainty connected 
with the national tariff policy thus becomes a serious handicap to the 
very branch of commerce which it was never intended that the tariff 
should affect. For half a century, it is true, this branch of commerce 
has been relatively so insignificant in the United States that it has 
been ignored in the framing of successive tariff acts. Should it, how- 
ever, attain the development promised by the fulfillment of present 
tendencies, its security will demand either a very stable tariff policy 
or the provision of neutral zones for its transaction. In this connec- 
tion it may be noted that the advocates of a more extended tariff 
system in England are now incorporating in their policy proposals 
for a system of free ports. ** 

(6) Miscellaneous advantages. — There are other advantages, inci- 
dental but practical, that are expected of a free-zone system by its 
advocates. Among them is the feasibility of removing the present 
restriction of the bonding privilege to a period of three years; the 
provision of adequate space and facilities for exhibiting goods and 
samples, and for demonstrating methods of selecting and packing 
merchandise so as to meet foreign requirements; a reduction in the 
costs of drayage and of other processes in handling goods. Again, 
it is urged that while there are some charges, such as taxes and wages, 
which will undoubtedly be as high within the zone as without, there 
are others, such as insurance, rents, and the charges for guarding 



FKEE ZONES IN POETS OF THE UNITED STATES. 25 

against violation of the revenue laws which should be lower than 
under the present system of scattered and more or less antiquated 
bonded warehouses. There are additional arguments for the free 
zone based on practices that have proved commercially advantageous 
in Europe. Mention may be made of the peculiar acceptability at 
Copenhagen of free-port warehouse certificates as collateral for ad- 
vances. The thorough police and fire protection provided there, the 
exemption of goods in storage from all customs claims, and the ade- 
quate precautions taken against deterioration render the certificates 
exceptionally desirable securities. In consequence, according to the 
testimony of men familiar with conditions at Copenhagen, advances 
on free-port warehouse certificates may be had on more liberal terms 
than on the certificates of private warehouse companies. 

NEW FORCE TO FACILITATE COMMERCE. 

Such are the advantages, concisely stated, that may accrue from 
the establishment of a free-zone system. They are necessarily con- 
tingent, for the reason that they are found in a kind of commerce 
which for several generations has existed in this country in relatiAely 
insignificant amount. It is evident that the success of a free zone 
and all the claims that are made for it will depend on two things, 
namely, the volume and character of its commerce and the efficiency 
of its construction and operation. This explains why the results of 
European experience have differed in different ports. Obviously, 
the free zone alone can not create commerce; it can only facilitate 
the operation of the forces that do create it. 

At the present time the commerce proper to a free zone exists in 
relatively small volume at the ports of the United States; and since 
investments for construction and equipment would have to be made 
with a view to its future growth, they would be in large measure 
speculative. But many of the conditions formerly limiting Ameri- 
can participation in international trade no longer exist, and within 
the last few years the joint influence of new forces has given to our 
commerce an expansion that has taxed our port and harbor facilities 
even beyond their capacity. Active measures for the retention of 
this commerce after the war will be necessary ; at the same time, its 
present importance and the possibility of its further development 
underlie the confidence of those who advocate a system of free zones. 
But at any American port at which a free zone is proposed, before 
capital is put into such an enterprise, there would be necessary a 
careful and detailed study both of the cost of construction and 
operation and of the liklihood of commercial expansion in the par- 
ticular field to which free-zone facilities and privileges would be 
adapted. It is clear that costs and prospects would vary widely 
from port to port. Some are natural points for the consignment, 
distribution, and debouchment of goods; others are not. At all of 
the ports, however, where conferences were conducted by the Tariff 
Commission — notably at New York, Philadelphia, and San Fran- 
cisco — merchants, shipoAvners, and other classes of business men re- 
garded the establishment of a free zone as a wise measure of public 
policy and an enterprise promising financial profit. Kesolutions of 
organizations in these and other cities, indicating the thoughtful 
opinion of business men, are included in the appendix to this report. 



26 FREE ZONES IN PORTS OF THE UNITED STATES. 

There are also appended sycopated reports of hearings conducted by 
the Tariff Commission. 

The legislation proposed is merely permissive in character. It 
leaves the initiative to the locality and puts upon it all risk and re- 
sponsibility. In the judgment of the Tariff Commission this is as 
it should be. The Federal Government can give no preference to the 
ports of one State over those of another. Each State or political 
subdivision thereof should be permitted, subject to general require- 
ments that are the same for all, to establish and equip at its own ex- 
pense a zone wherein foreign merchandizing may be entered free of 
duty. 

After exhaustive study of foreign institutions and careful investi- 
gation of American conditions and mercantile opinion, the Tariff 
Commission recommends the policy of permitting the establishment 
of free zones in American ports. 

The commission is of the opinion that the privileges granted in a 
general enabling act should be confined to public corporations. 

The great facilities to be erected and established would necessa- 
rily be public in their nature and functions. If undertaken by none 
except public corporations, many restrictive requirements and pen- 
alties needed to prevent abuses under private management could 
safely be eliminated. While the commission believes that the pri- 
mary grant should be made to public corporations under the State, 
there appears no objection to concessions being made by the grantee 
to private persons or corporations whereby they may be permitted to 
-establish their own buildings, piers, and other facilities. 

Should cases arise where private construction and ownership would 
appear to be the only or the best method of establishment, it would 
seem better to leave them to special legislation, in which the varying 
needs of each individual establishment could be specifically treated. 

The commission is further of the opinion that no United States 
territory should be deprived of the possibility of enjoying the privi- 
lege, under safeguards, and that the establishment of free zones in 
the United States, its Territories, and dependencies should be per- 
mitted. There would seemingly be the possibility of both national 
and local benefit from the establishment of free zones in the Terri- 
tories of Hawaii, Alaska, and Porto Rico. The Canal Zone, being 
held under treaty tenure for specific canal purposes and doubtless 
incapable of securing public funds apart from those of the Federal 
Government, does not come within the scope of the bill. 

The commission indorses the enactment of enabling legislation 
for the establishment and operation of free zones. 

Obviously, if enabling legislation is passed, Congress will pro- 
vide for the proper administration of a free zone and will also make 
sure that the institution coordinate with tariff and other laws. In 
its operation a free zone can not impigne upon customs duties nor 
modify the tariff laws as to classification and rates. 

The function of a free zone is to eliminate as far as may be hin- 
drances and delays to commerce and to facilitate foreign trade. 

The commission believes that the free- zone privilege should be 
confined to public corporations established, maintained, and operated 
as a public utility. 

The legislation should be permissive in character and the powers 
of the department having jurisdiction thereunder should be clearly 
defined. 



APPENDIX. 



27 



CONTENTS 



Page. 

Report of convention of National Foreign Trade Council 29 

Report of committee of New York Chamber of Commerce 29 

Resolution adopted by Philadelphia Chamber of Commerce 31 

Report of committee of Philadelphia Board of Trade 31 

Resolutions adopted by the Philadelphia Bourse 32 

Resolution adopted by the foreign-trade bureau of the New Orleans Association of 

Commerce 32 

Resolution adopted by the Commission Council of New Orleans 33 

Resolutions adopted by board of directors of New Orleans Cotton Exchange 33 

Report of committee of Galveston Commercial Association 34 

Report to United States Tariff Commission by committee of San Francisco Cham- 
ber of Commerce 35 

Resolutions adopted by board of directors of San Francisco Chamber of Commerce- 50 

Extracts from a hearing held by United States Tariff Commission in New York 50 

Extracts from a hearing held by United States Tariff Commission in Philadelphia. 62 

Interview between Hon. William Kent and Capt. V. Lassen 80 

Letter of George R. Meyercord '. 86 

Letter of Charles D. Boyles ' 87 

Address of H. R. Geddes, of Dover, England 88 

Acts of Congress granting privileges similar to free-zone practice 91 

Law for establishment of a free port at Copenhagen 92 

Charter of Copenhagen Free Port Joint Stock Co 94 

Rules for the administration of the free port of Copenhagen 101 

Law providing for a commission to select a site for a free port at Lisbon, Portugal- 103 
Royal decrees providing for establishment of free ports at Cadiz, Barcelona, and 

Bilboa, Spain 105 

Bill providing for the establishment of free zones in French maritime ports, intro- 
duced in the French Chamber of Deputies July 10, 1914, with explanatory letter- 111 

28 



APPENDIX. 



FOREIGN TRADE COUNCIL. 

Beport of General Convention Committee of the National Foreign Trade 
Convention, Chicago, 111., April 26, 1919. 

This committee prepared the following report, which was submitted to all 
the delegates at the close of the convention's last session and ratified unani- 
mously as its final declaration : 



FREE ZONES ADVOCATED. 

The establishment of free zones at the principal American ports, where prod- 
ucts from all countries can be assembled, classified, manufactured, and re- 
shipped, will be of great assistance in developing full cargoes both ways, so 
essential to the success of the new American merchant marine. 



Report of Committee of New York Chamber of Commerce. 

At the regular monthly meeting of the Chamber of Commerce of the State of 
New York, held January 3, 1918, the following report, presented by its com- 
mittee on foreign commerce and the revenue laws, was unanimously adopted: 

REPORT ON THE ESTABLISHMENT OF A FREE PORT AT NEW YORK. 

To the Chamber of Commerce: 

Your committee on foreign commerce and the revenue laws has had under 
consideration the proposition to establish at New York a free port or free zone. 
During December the United States Tariff Commission held hearings in the city, 
at which arguments were made for and against this proposition. These hear- 
ings were attended by several of your committee ; the subject also has been given 
careful study by all the members of your committee, both individually and in 
conference. 

The proposal to establish free ports in America is a part of the systematic 
development of our country which, it is obvious on every hand, is now for the 
first time to receive scientific thought and treatment. 

In the United Stated no free ports, or more accurately, free zones in ports, 
have ever been established. The oldest example abroad of such a port is at 
Hamburg, Germany, where a large area has been set aside, into which foreign 
materials may be imported free of duty. In this area these materials may be 
stored, assembled, repacked, manipulated, or manufactured without custom- 
house inspection, charge, or interference. When it suits the convenience or 
business plans of the owner of these materials, either he may reload them 
aboard ship and reexport them without payment of duties and without custom- 
house interference or he may send them out of the free zone, which is an in- 
closed and guarded area, and pass them through the customhouse to their 
destination in the domestic market. The owner of the goods when he takes 
them from the free zone into the nonfree zone must, of course, subject them to 
the usual inspection and customs charges as if directely imported. 

It is, therefore, obvious that the establishment of a free port has no bearing 
whatsoever upon the political question of free trade or protection. The creation 
of a free zone in a port is designed to facilitate foreign trade, while at the same 
time protecting the customs revenues of the home country. 

Under the present system in the United States bonded warehouses have been 
established into which imported goods may enter in bond and from which they 
may be withdrawn for consumption or for reexportation to foreign markets. 

29 



30 FREE ZONES IN PORTS OF THE UNITED STATES. 

The bonded warehouse system is cumbersome and very unsatisfactory in a 
high-protection country, seeking to do a large international trade. The ad- 
vantages over this system to be derived by the establishment of a free zone in 
our port would be numerous. Among them may be mentioned the following : 

(1) A free zone would facilitate the removal of imports from piers and from 
vessels, and thus relieve congestion so that ships would arrive and depart more 
quickly. For instance, the loss of time in weighing imports, in selecting one- 
tenth part for the appraisers' stores, as is required in some cases, and in 
meeting the restrictions which may be imposed on transfer of imports from 
vessels by lighter, would all be eliminated on goods landed at the free zone. 
When a ship ties up in a free port it is possible to unload the cargo without 
any customs inspection. 

(2) A free zone would make it possible to avoid the complications of bonding 
and drawbacks in the case of reexported goods. Under the present system, for 
instance, where imported goods are merely repacked in this country the im- 
porter goes through the elaborate details of paying duties and then is subjected 
to further red tape, expense, and loss in the process of getting the duties paid 
refunded in the shape of drawbacks. 

(3) The free zone would give the owner at all times control of his mer- 
chandise, which is an important advantage over the bonded warehouse system. 
The owner has free access to his goods at all times. Machinery may be assem- 
bled here. Manufacturing may be carried on, where domestic and foreign mate- 
rials are combined, or otherwise. Show rooms may be equipped and goods sold 
to buyers therein. Goods may be imported in bulk, split up, reassorted, or 
mixed up with other goods, and prepared for shipment as demand may arise in 
this country or abroad. 

(4) The free zone has financial advantages in that it would release capital 
now tied up by our customs regulations. Also, the more rapid movement of 
ships and cargo makes a more rapid turnover possible and a corresponding 
decrease in capital requirements. 

(5) The creation of a free zone involves the building of large, specialized 
terminals with all modern appliances for loading and unloading, transshipping 
and warehousing, and, in some ports abroad, for light manufacturing. Further- 
more, dry docks, repairing and shipbuilding facilities are provided. This all 
cuts down materially terminal costs, which usually constitute about 60 per cent 
of the cost of ocean transportation. . 

(6) The establishment of free ports in this country will materially assist the 
United States to meet in foreign markets the competition for trade from such 
free ports in Europe, and will be a great aid to our foreign and shipping trades in 
the struggle for international business at the close of the war. 

In view of the advantages accruing from free ports, and in view of the 
necessity that every efficient and economic facility be provided for increasing 
our international trade and traffic, so that our immense mercantile marine and 
shipping industry now being built up may find employment in peace times, your 
committee is moved to recommend the following : 

Resolved, That the Chamber of Commerce of the State of New York records 
its belief in the wisdom and necessity of establishing free zones at New York 
and at such other ports as may be deemed advisable, the location, area, and 
equipment of these zones to be determined after investigation by the proper 
authorities competent to pass on such matters ; and be it further 

Resolved, That copies of the foregoing report and resolutions be sent to the 
members of the United States Tariff Commission and to the Members of 
Congress. 

Henry A. Caesar, Chairman. 
William E. Peck, 
Charles A. Schieren, 
Lincoln Cromwell, 
John V. Jewell, 
W. Tyrie Stevens, 
I. Osgood Carleton, 
Committee on Foreign Commerce 

and the Revenue Laws. 
Eugenius H. Outerbridge, 

President. 
Attest : 

Charles T. Gwynne, Secretary. 
New York, January 4, 1918. 



FKEE ZONES IN PORTS OF THE UNITED STATES. 31 

Resolution Adopted April 2, 1918, by the Philadelphia Chamber of 

Commerce. 

(Later presented to Chamber of Commerce of the United States at its annual convention 
at Chicago, April 10, 11, and 12, 1918, and referred to board of directors of that 
chamber, with request that they give it early and serious consideration.) 

Whereas the United States is building a large merchant marine ; and 

Whereas when the war is ended we believe that the American people will 
demand that this great tonnage shall be retained to build up and increase our 
forign commerce; and 

Whereas in our opinion it is prudent in time of war to prepare for peace . 
conditions after the war ; and 

Whereas we believe that the establishment, operation, and maintenance of 
free zones in the ports of the United States will be of far-reaching benefit to 
and for the foreign and domestic commerce of our country ; Therefore be it 

Resolved. That the Chamber of Commerce of the United States petition the 
Congress of the United States to enact at this session, legislation for the estab- 
lishment, operation, and maintenance of free zones in the ports of the United 
States. 



Report of Committee of Philadelphia Board of Trade. 

Philadelphia, ifarch 25, 1918. 
To the President and Executive Council of the Phildelphia Board of Trade. 

Gentlemen : Your committee on foreign and coastwise commerce, to which 
at the last meeting of the Phildelphia Board of Trade, held March 18, was 
referred the question of the establishment of free zones in the ports of the 
United States, begs to report that its representatives were present at the hearings 
which took place in Philadelphia, at the rooms of the board of trade, January 
22 and 23, 1918, before Hon. William Kent and Edward P. Costigan, Esq., of the 
United States Tariff Commission, at which there appeared a very full repre- 
sentation of the commercial and business interests of the city. 

The opinions, as there expressed, were practically favorable to the establish- 
ment of such free zones as being in the best interests of the commerce of the 
country, and it was earnestly contended that the port of Philadelphia was 
idally equipped for the^ establishment of such a free zone, should the Govern- 
ment authorize this departure in the business methods of the customhouse 
service. 

The main arguments offered in favor of the Government authorizing such 
free zones may be summarized, as follows : 

I. The great saving of time and expense on the part of the Government in the 
handling of the imports upon their arrival in free zones and avoiding at that 
time the now necessary customs inspections. 

II. The avoidance of all complications attending the bonding and securing of 
drawbacks in case of the desire to reexport the arriving merchandise. 

III. The control by the owners of the goods stored in free zones, furnishing 
an additional facility for the profitable transaction of business, especially as to 
rehandling, packing, mixing, etc. 

IV. The advantage to manufacturers in the possibility of establishing their 
factories in the free zones, particularly where they are dependent upon dutiable 
raw materials, thus avoiding the troublesome conditions surrounding the ques- 
tion of drawbacks on their exported products. 

V. In the competition for the international commerce of the world, the estab- 
lishment of free zones will, it is believed, greatly aid the United States in secur- 
ing its fair share of this trade. 

VI. The example of Hamburg seems to prove the advantages of a free zone, 
which doubtless will be dwelt upon in any report made by the Tariff Commis- 
sion and should prove a convincing argument in securing congressional sanction 
for the necessary change in the customs laws authorizing the establishment of 
such free zones. 

Under the authority granted, the committee on foreign and coastwise com- 
merce of the Philadelphia Board of Trade submits the foregoing as briefly 
representing the views of the board of trade in favor of the establishment of 
free zones, together with the following resolution : 



32 FREE ZONES IN PORTS OF THE UNITED STATES. 

Resolved, That the Philadelphia Board of Trade, from the evidence submitted 
at the hearing in Philadelphia before representatives of the United States 
Tariff Commission, believes that the establishment of free zones in the ports of 
the United States will largely increase the facilities for the conduct of the foreign 
trade of the country. 



Resolutions Adopted by the Philadelphia Bourse. 

(An organization composed of over 2,500 business men, firms, and corporations having as 
one of its objects the improvement of the city, State, and Nation, acting through its 
board of directors, at a meeting held April 20, 1918.) 

To the honorable the Senate and House of Representatives in Congress 

assembled: 

Whereas the consensus of opinion of that portion of the business public which 
is engaged in importing and reexporting the products of foreign countries, as 
shown by the testimony given at the several hearings on the subject, seems 
to fa vor the establishment of free zones in the ports of the United States ; and 

Whereas at the hearing held in Philadelphia January 22 to 23, 1918, by 
members of the Tariff Commission the opinions expressed were unanimously 
in favor of such free zone in the port of Philadelphia ; and 

Whereas the special committee of this board having the subject under con- 
sideration has expressed itself in favor of the general idea as well as its ap- 
plication to the port of Philadelphia for many reasons, including the following: 

1. The facility of receiving, rehandling, repacking, and reshipping imported 
goods without the loss of time and the expense of the present obligatory cus- 
toms inspection. 

2. The elimination of the necessity for application for drawbacks on re- 
exported foreign merchandise with all the attendant annoyances, and as well 
the necessity of bonding such goods as are to remain in storage pending 
removal. 

3. The opportunity for the establishment of factories within the zone for 
the manufacture of goods destined for export and into which imported raw 
materials enter largely, avoiding all annoyance with respect to bonded fac- 
tories and drawbacks. 

4. The upbuilding of a port or ports for the free exchange or transshipment 
of cargoes or part cargoes, thus increasing the tonnage of the port or ports 
having such zone, adding materially to the business of the port in supplying 
the additional ships, their repairs, etc. ; adding generally to the shipping of 
the Nation and finding a paying outlet for the vast tonnage under our flag 
after the successful termination of the war. 

And whereas there has been introduced in Congress a bill (H. R. 10892) 
** to provide for the establishment, operation, and maintenance of free zones 
in the ports of the United States and for other purposes " : Therefore, 

Resolved, That the Philadelphia Bourse notes with satisfaction the effort 
being made toward the establishment of free zones 4n the ports of the United 
States, believing such system would be a most valuable adjunct in the promo- 
tion of the foreign trade of the country, and it hopes for the early considera- 
tion and enactment into law of the principles contained in bill H. R. 10892. 

Philadelphia Bourse, 
[seal.] By Emil P. Albkecht, 

President. 
True copy. Attest: 
W. R. Tucker, 

- Acting Secretary. 



Resolution Adopted March 28, 1918, by the Committee of Management 
of the Foreign Trade Bureau of the New Orleans Association of Com- 
merce. 

Whereas there has been introduced in Congress by the Hon. J. Y. Sanders, 
Congressman from Louisiana, a bill which seeks to create within the United 
States free ports or free zones in which areas there shall be no custom regu- 






FREE ZONES IN PORTS OF THE UNITED STATES. 33 

lations or interferences whatever in the free handing in or out of merchandise 
manufactured or manufacturing ; in which area merchandise may be received 
from foreign countries, reshipped, repacked, or combined with domestic goods 
and shipped out of this country; where partly manufactured goods may be 
brought to a completed state; which condition of import and export would 
create many opportunities for the commerce of our country, giving employ- 
ment to labor and to capital and putting our foreign commerce on an equal 
basis with foreign competitions ; in which free flow of commerce and manner 
of handling imports and exports the commerce of our port and this whole 
southern and contral section of the United States would be greatly facilitated : 
Therefore be it 

Resolved, That we, the foreign trade bureau of the New Orleans Association 
of Commerce, recognize the great value to the condition of our foreign com- 
merce which this bill would bring about, heartily indorse this bill as presented 
by J. Y. Sanders, and will cooperate with any assistance necessary to have 
same enacted, and that a copy of this resolution be forwarded to the United 
States Tariff Commission. 



Resolution Adopted by Commission Council of the City of New Orleans 

April 2, 1918. 

(By Mr. Glenny.) 

Whereas there has been introduced in Congress by Hon. J. Y. Sanders, Con- 
gressman from Louisiana, a bill which seeks to create within the United States 
free ports or free zones in which areas there shall be no custom regulations 
or interferences whatever in the free handling in or out of merchandise manu- 
factured or manufacturing; in which area merchandise may be received from 
foreign countries, reshipped, repacked, or combined with domestic goods and 
shipped out of this country ; where partly manufactured goods may be brought 
to a complete state, which condition of import and export would create many 
opportunities for the commerce of our country, giving employment to labor and 
to capital and putting our foreign commerce on an equal basis with foreign 
competitions, in which free flow of commerce and manner of handling imports 
and exports the commerce of our port and this whole southern and central 
section of the United States would be greatly facilitated ; Therefore be it 

Resolved, That we, the commission council of the city of New Orleans, recog- 
nizing the great value to the condition of our foreign commerce which this bill 
would bring about, heartily indorse this bill by Mr. Sanders and will cooperate 
with any assistance necessary to have same enacted. 

Be it further resolved, That a copy of these resolutions be forwarded to 
the United States Tariff Commission. 

Adopted. 



Resolutions Adopted by the Board of Directors of the New Orleans Cotton 

Exchange March 18, 1918. 

Whereas we are firmly convinced that the establishment of a system of free 
ports in the United States will prove a great aid to our foreign and shipping 
trades for international business ; and 

Whereas such a system will contribute greatly toward enabling us to find 
employment in peace times for our immense mercantile marine and shipping 
industry now being built : 

Resolved, That the New Orleans Cotton Exchange strongly recommends the 
adoption of legislation by the United States Congress establishing free zones 
at New Orleans, New York, and such other ports as may be deemed advisable. 
The location of such zones to be determined upon investigation by proper 
authorities competent to pass on such matters. 

Resolved further, That copies of the foregoing preamble and resolutions be 
sent to the United States Tariff Commission and the Senators and Members of 
Congress from this State. 

140955—19 3 



34 FREE ZONES IN PORTS OF THE UNITED STATES. 

Report of Committee of Galveston Commercial Association. 

Galveston, Tex., March 30, 1918. 
To the officers and directors of the Galveston Commercial Association. 

Gentlemen : Your special committee, appointed for the purpose of examin- 
ing into the matter of establishing free port areas or zones in the different 
ports of the United States, beg leave to submit the following report: 

There is one question which naturally arises in the minds of the farsighted 
business men of America and that is, What preparation are we making look- 
ing to the promotion of better and freer international commercial relations 
after the conclusion of the present war? At this time there is no satisfactory 
answer to that question. 

In our opinion the industrial competition which will follow the ending of 
the present war is a matter that should now receive the most careful consid- 
eration at the hands of Congress and others responsible for advancing the best 
interests of this Nation and our people. It might be well said, " In the time 
of war, prepare for peace." 

The establishing of free port areas at selected American seaports is one 
of the most important steps requiring immediate consideration. In supplying 
and meeting the great needs of devastated Europe, the United States will 
occupy a commanding position. It will require many years for Germany to 
over come the bitter hatred that she so well merits at the hands of civilized 
nations, and friendly America, who entered the world conflict from only the 
loftiest motives, will no doubt be looked to with favor in a commercial way 
for a very long time. 

Free port areas are designated zones with a channel frontage at deep-water 
ports, in which shipbuilding, ship repairing, warehouses, and manufacturing 
establishments are located. Materals of all kinds imported from foreign 
countries would be accepted at free ports without the payment of duties. 
These materials, as a whole or in part, could be manufactured into finished 
products and these products, after furnishing employment to American labor, 
could be exported to South American or any other countries where duties, if 
any, could be paid by the purchaser. In this free port area goods and ma- 
terials may be stored, assembled, repacked, or used in manufacturing without 
previous payment of customhouse charge; also without customs interference. 

Free port areas are also great markets where buyers could go and make their 
selections and pay the duty at the time of delivery instead of making selec- 
tions from samples or sending buyers to Europe. In these areas the goods are 
always accessible to the owner and subject to inspection. Rough rice could 
be imported from Japan, furnishing inbound cargoes at low freight rates for 
ships calling at our ports for cotton. This rice could be polished and packed 
and withdrawn gradually from the free port area, paying duty on quantity 
withdrawn instead of paying duty on entire cargo on arrival. 

The free port zones of other countries are largely ship-repairing plants and 
trading centers rather than manufacturing centers. In the United States they 
would tend toward the upbuilding of our merchant marine and aid in bringing 
to America raw materials and goods of foreign nations either for reexport or 
entrance with the minimum of delay and difficulties and none of the unsatis- 
factory red-tape features connected with bonded Warehouses. These zones 
simplify the conduct of import business and they also admit of the rapid un- 
loading of ships, thus expediting their arrival and departure. 

In view of the facts stated, we submit for adoption the following resolution : 

Whereas the port of Galveston being located on deep water, having thor- 
oughly modern and up-to-date wharfage and terminal facilities, with terminal 
railroads contiguous to said wharfage facilities;. and 

Whereas the geographical location of the port of Galveston is such as to 
make it the logical concentration and distribution center for South American 
countries, European countries, and the far eastern Pocific Ocean countries, via 
the Panama Canal: Now therefore be it 

Resolved by the board of directors and advisory board of the Galveston 
Commercial Association, after a thorough study and consideration, That it 
recommends to the United States Tariff Commission the advisability and neces- 
sity for the establishment of free port areas or zones at the port of Galveston, 
and at such other ports of the United States as in its judgment may be deemed 
advisable; said locations," area, and equipment of said free port area or zones 
to be determined after investigation by the proper authorities vested to pass 
upon such matters ; and be it 



FKEE ZONES IN" PORTS OF THE UNITED STATES. 35 

Further resolved, That copies of these resolutions be forwarded to the 
members of the United States Tariff Commission, and to the Texas Senators 
and Congressmen. 



Report to the United States Tariff Commission by the Committee on Free 
Port Appointed by the San Francisco Chamber of Commerce. 

[San Francisco Chamber of Commerce, committee on free port, 1004 Merchants' Ex- 
change Building, San Francisco.] 

February 28, 1918. 
Hon, William Kent, 

United States Tariff Commission, Washington, D. C. 

Dear Sir : The committee appointed by the San Francisco Chamber of Com- 
merce to take up the question of the advisability of recommending to Congress 
the establishment of free ports, or zones, has completed its labors and respect- 
fully incloses a complete copy of its findings and recommendation, which it 
is trusted may be found of value. 

Thanking you for the opportunity thus given, 
Yours, respectfully, 

Geo. A. Newhall, Chairman^ 



FOREWORD. 

The question of establishing " free ports " in the United States as a new 
national policy has been raised in Congress and to Hon. William Kent, a 
member of the United States Tariff Commission, has been assigned the duty 
of collecting and preparing data on the subject for transmission to Congress. 

The consideration of the matter before the San Francisco Chamber of Com- 
merce was inaugurated by Mr. Kent at a meeting held October 23, 1917, which 
was attended by representatives of the mercantile and shipping interests 
around San Francisco Bay, and this report is the result of the investigation 
that ensued. 

A brief explanation of the nature and purposes of what is meant by a " free 
port " may be of service in comprehending the following argument in favor 
of its institution. 

Free ports, or free zones in portions of harbors, have long been known in 
Europe and Asia, but the subject is much misconceived in the United States 
because of the ambiguity of the word " free." 

It does not mean freedom from harbor or port charges, such as tolls or 
wharfage on cargoes, dockage on ships, pilotage, towage, etc. Nor does it 
involve any change in tariff policy. Briefly, it means freedom from customs 
control. 

A reasonably large part of a port is segregated for the conduct primarily 
of foreign commerce, and in order to guard against intrusion by unauthorized 
persons and for the better enforcement of laws and regulations it is inclosed 
by substantial barriers on both land and water sides. This constitutes the 
" free zone," and from it all customhouse activities, except precautions against 
smuggling, are excluded. 

Here the imported merchandise is landed, and when the imports pass 
through the land or water gates of the inclosure into the country elsewhere, 
then at that time and at the gate, theoretically, the duties incident to the 
collection of the tariff dues begin and all the complicated rules and regula- 
tions of the customs service first go into operation. If the imports are not 
taken for domestic consumption, they may be reexported, whether in the 
original packages or otherwise, without payment of tariff dues or interference 
by customs officials. The same is true of foreign raw materials landed and 
worked up into manufactures inside the free port and designed for reexport. 

While the imports are in the free zone they may be stored in nonbonded 
warehouses or handled ad libitum by the parties interested with absolute 
freedom, and may be prepared for shipment either into the country or for 
transshipment or reexport to foreign countries and started on their way with- 
out the onerous impediments now caused by customhouse supervision, red 
tape, and penalties. 



36 FREE ZONES IN PORTS OF THE UNITED STATES. 

It is merely a new system of customs collection and supervision. The cus- 
tomhouse, so to speak, is removed from the ship and wharf, where it now 
holds sway, and is set up at the gates of the free zone. 

The proposed change does not in any way affect the nature or size of the 
tariff dues, simply the method and manner of their collection and the places 
where the customs activities shall be exercised. The aim is to put them out- 
side the free zone entirely. 

Of course the inclosed area of water and land inside the free zone must be 
sufficiently large to accommodate the foreign commerce of the port, and it 
should be provided with all the necessary wharves, nonbonded warehouses, rail- 
ways, spur tracks, and devices required for Jhe rapid and economical handling 
of cargoes. 

This report was prepared on behalf of the San Francisco Bay conference 
alluded to by Mr. J. J. Dwyer, former president of the board of State harbor 
commissioners in charge of the port of San Francisco. 

FKEE POETS AS A NATIONAL POLICY. 

We have reached the conclusion without a dissenting voice that a national 
policy of free ports should be inaugurated by the Federal Government for the 
reason that such a policy would directly tend in a marked degree, well worth 
the cost of the necessary changes in the present system, to increase profitable 
foreign trade and build up a merchant marine, whether the latter is to remain 
privately owned and operated or be more or less governmentally owned or 
controlled or operated. 

In giving our reasons in detail, we shall try to avoid anything like an 
essay on the theory of the subject, or an attempt at a summary of the practice 
and experience of foreign free ports, which would only be a useless repetition 
of matters better stated in other compilations and reports. Of such reports 
of American origin, we refer particularly to those emanating from the Mer- 
chants' Association of New York, which we have found most illuminating 
and have studied, we hope, with profit. We say say, briefly, that the New 
York conclusions seem to us well-founded and their reasons clearly stated 
and very persuasive in favor of the idea. We have no hesitation in saying 
that we share their convictions most decidedly. 

We had attempted a treatment of the subject in the abstract, but on perus- 
ing the argument in favor of the installation of a free port on New York Har- 
bor, which was submitted to the United States Tariff Commission by the 
industrial bureau of the Merchants' Association of New York, it became 
apparent that much of our matter could be eliminated as mere repetition of 
what is there contained in more cogent form, and therefore what we have to 
say will be largely supplementary to that argument or illustrations drawn 
from our local experience. 

THE PORTS OF NEW YORK AND SAN FRANCISCO ANALOGOUS IN FOREIGN OUTLOOK. 

The geographical situation of San Francisco Bay, with respect to the 
Pacific Ocean trade of the United States, is justly comparable with that of 
New York with respect to the Atlantic trade, even if the New York trade 
partakes in larger measure of the character of world trade. This analogy 
holds good both as regards back country in America and as regards foreign 
countries facing us. Russia through Siberia, Japan, China, Java, Australia, 
New Zealand, and even British India now have trade relations of great volume 
and value with and through San Francisco. This is true also of the eastern 
shores of the Pacific, South America, Central America, Mexico, and Canada. 
Statistics to justify this statement are readily available and need not be cited 
here. The names of these countries alone call to mind enormous populations 
hungry for our manufactures, cotton, steel, metals, and food products and 
other raw materials, and themselves teeming with food products and raw 
materials which we need and must have, not only for our domestic use but 
also indispensable if we propose to compete successfully with Europe in sup- 
plying the world trade. Expatiation on this idea would be easy, but its appli- 
cations are obvious. The reasons that are valid in New York are valid here. 

So, like New York, we approach this subject in no small or local spirit. 
We have tried to measure it on the national scale. * Is the free-port policy a 
wise departure for the Nation? Will it pay? Will the results justify the 
cost? Are its manifest advantages offset by any demonstrable disadvantages, 



FKEE ZONES IN POETS OF THE UNITED STATES. 37 

that either outweigh the advantages or come so near balancing the scale that 
the change is not worth while? Can the present customs system, the growth 
of a century of experience, be remodeled in its operative methods and adapted 
to the free-port idea without disadvantage to the customs revenues either in 
cost of collection or security against smuggling? 

We have kept these fundamental questions in mind in reaching our con- 
clusions. 

We assume that foreign trade is a good thing, even an indispensable thing, 
for our country, and we assume that a merchant marine owned and operated 
by our own people, either under public or private auspices, is highly advan- 
tageous, and, in fact, that recent experience due to the world war has 
demonstrated that a merchant marine is almost vital to the preservation of 
our political and industrial system, let alone a profitable enterprise in itself. 

For the present purpose such assumptions will be made. We believe in both 
of them most religiously. Arguments as them belong elsewhere and are 
readily available. But it is proper to say that it is our profound faith in both 
assumptions that makes us vividly realize the tremendous importance of the 
free-port idea. San Francisco is a commercial community. For the 70 years 
of its existence it has thrived on foreign commerce. Its future is bound up 
in its expansion and extension in all directions and to all countries. Our 
horizon is the world. We want our markets eventually to be everywhere, 
but without any boasting we have the vision to see that the present beginnings 
in the Orient and on this side of the Pacific will in the immediate future 
grow by leaps and bounds provided we are not handicapped in the race by 
governmental regulations that unnecessarily impede foreign trade and which 
can be removed by wise changes and no corresponding loss. Our natural 
advantages of geographical situation, the possession of a harbor almost un- 
equaled in size and conveniences, with deep water, negligible tides, no storm 
damage, a mild, even climate the year round, these give us the necessary basis 
for foreign trade in a measure rarely equaled. 

HELPS AND HINDEANCES. 

What remains is for us to see that the legitimate artificial helps are speeded 
up and that the artificial hindrances are reduced to a minimum. 

Briefly, the artificial helps directly under our control come under the domain 
of transportation — ship, rail, and otherwise, switching and other conveniences — ■ 
and under the head of general harbor facilities, including quicker and cheaper 
warehousing and freight handling in every department. These can not be 
discussed here, but must be mentioned, because they must all be connected up 
with the free-port idea most intimately and definitely before the latter can 
be even understood and especially before the latter can be seen to be an 
appreciable step in advance. It is because and principally because the com- 
bination of artificial helps alluded to, in themselves capable of indefinite 
improvement, will work better and flourish and grow better under free-port 
arrangements than under the present system, that the free-port idea is at all 
to be considered. 

The difficulty about the argument for the free port from the theoretical side 
is that it is so obviously sound as to be axiomatic, and discussion or expatia- 
tion tends rather to obscurity than clarification. 

As a matter of course, freedom from customs control, and the incidental 
delays, costs, vexations, and losses, must inevitably benefit foreign trade. To 
argue otherwise is to say that a man can work faster or better with a couple 
of fingers or a hand tied up or missing. 

It would be foolish to say that the freedom of the port in and of itself 
alone makes a port great in its volume of foreign trade. We have great ports 
that are not free ports. It would be ridiculous to contend that the trade of 
London or Hamburg, for example, has been due solely or even mostly to the 
kind of " freedom " involved in the free-port idea. Many factors and causes — 
some natural, as above stated, some artificial, of the kind alluded to, others 
that belong under the head of financial organization, labor conditions, Gov- 
ernment aid, etc., in varying degrees in different great ports — go to make up 
the sum ; but what is in point here is to note and make plain that the freedom 
of a port from unnecessary interference by Government officials and rules and 
restrictions, whether customs or otherwise, must necessarily and to an appre- 
ciable degree be a real factor to be reckoned with. It may not be so easy to 
see this in the case of London and Hamburg, where the other factors are so 



38 FREE ZONES IN" PORTS OE THE UNITED STATES. 

overshadowingly important, but it is very easy to see it in the examples of 
Hongkong and Singapore on the Pacific, and it has been made quite apparent 
in the recent brief trial in Copenhagen in Europe. We must content ourselves 
to mere references on these aspects of the subject. 

If the freedom of a port is a measurable factor in its prosperity, it follows 
that conceivably it may in many cases be the deciding factor as between it and 
its foreign rivals. 

LOOK ACROSS THE PACIFIC. 

A general survey of Pacific Ocean commerce will in our judgment warrant 
the conclusion that a national free port policy applied to San Francisco Bay 
would mean in a short time the establishment of an international market on 
San Francisco Bay comparable in importance with Hongkong and Singapore. 

When we consider how much of the trade of both these great world ports 
is directly and plainly traceable, in the first place, to wise governmental helps 
of an affirmative character, and secondly, to the absence of customs control 
or interference — that is to say, to the fact that they are free ports — we arrive 
at some comprehension of the degree in which it is true to say that the great- 
ness of both ports has been largely artificially established by England. 

Both these ports are, on the one hand, practically " branch stores," as they 
have been aptly called, for the sale in the Orient of goods from all nations, 
and, on the other hand, they are the assembly places of the innumerable car- 
goes, large and small, that come not only from their respective immediate 
neighborhoods, but from all over the Orient, and whose ultimate destination is 
Europe or the Americas. In this way are collected, and then sorted, graded, 
and packed, the spices, cocoa, teas, vegetable oils, tin, and other ores, rubber, 
copra, and other raw materials, in immense volumes, that might indeed have 
been gathered up elsewhere but are gathered up and reexported by Singapore 
and Hongkong largely because of their superior port arrangements based on 
the free-port policy. These artificial arrangements have been the main, if not 
controlling, factors in making them the distribution centers and market places 
both for imports to and exports from the Orient. 

THE PACIFIC OCEAN OF OPPORTUNITY. 

San Francisco ought to fulfill similar functions as between the Orient and 
Spanish America, and we believe the free-port system would help appreciably 
in giving a strong impetus to, the creation and indefinite expansion of that 
branch of foreign commerce which embraces the reexport trade. 

The argument must be brought down pointedly to that particular department 
of foreign commerce which involves transshipment or reexport. 

IS THE TRANSSHIPMENT TRADE WOETH SEEKING? 

We will fail to understand the question in its nature or magnitude unless 
we start with a fair appreciation not only of the utility of foreign trade as a 
whole but also a sufficient estimate of the large department of foreign trade, 
which consists simply of the processes of handling over and over again the 
same things in their passage from the fields, of their production to the factories 
where they are turned into goods or to the shops where they are delivered to 
customers, and, conversely, the repeated handling of the finished products on 
their way out from the factory to their markets the world over. Of course the 
profits are in proportion to the volume handled. The profits of this mer- 
chandising commerce go to the ports best equipped by natural and artificial ad- 
vantages and with highly developed financial and business organizations. It 
is a commercial truism that trade will, within limits, follow the lines of least 
resistance. And, of course, where customs regulations are absent, to that 
extent indubitably will trade flow preferably through free channels. 

The transshipment business of the world runs annually into billions of 
dollars. Good authority makes the figure over four billions. Up to the World 
War much the greater part was done in free ports. It is well worth the effort 
to get our share. 

Comparatively but a very small proportion of America's trade with foreign 
nations has come under this head, but its growing importance has been made 
more and more manifest by the development and changes due to the present 
war. 



FKEE ZONES IN POETS OF THE UNITED STATES. 39 

The business in the Occident has heretofore centered in the neighborhood of 
the British Channel and the North Sea and in the Orient at Singapore and 
Hongkong. 

If American ports want to compete successfully with European and Asiatic 
ports in this rich sphere of trade, we will be handicapped in the race just in so 
far as that trade is artificially hindered by the manner and method of the 
enforcement of the customs laws. Nothing is here said or intended for or 
against either a high or low tariff or for or against a protective or revenue 
system of tariff taxes. We mean to confine ourselves solely to the manner and 
method of enforcing the collection of the tariff taxes, whatever be the par- 
ticular policy in force as to the kind or amount of the customs dues. We are 
familiar with and know from experience the costs, delays, vexations, and losses 
due to customs red tape and supervision. They are, we believe, a very serious 
impediment to the reexport trade and foreign commerce generally. If removed, 
the gain will be enormous. If they can be removed by the simple process of 
putting the customhouse and its red tape wholly outside the free zone or free 
port, without any loss to the Government in revenue^ without any increase in 
the cost of collecting the taxes and without any greater risk of smuggling, 
surely nothing remains of the argument except the single question as to whether 
in the older ports the change can be effected without too great a cost for the 
physical constructions or rearrangements necessary to install the free-port 
system. In the newer ports, where there is much virgin territory to work on, 
of course this part of the problem is of easier solution. 

In the latter aspect it is proper to point out that on San Francisco Bay 
the present situation lends itself admirably to the proposed change. It would 
be idle to go too deeply into that question at this time. If the policy be a 
wise one nationally, the natural advantages above adverted to, an inspection of 
the San Francisco Harbor on both sides of the Bay of San Francisco, a con- 
sideration of the commercial propensities and aptitude of our people, the evi- 
dence furnished by immense recent outlays for harbor improvements, and the 
superior facilities now available, all combined demonstrate the justness of the 
conclusion that San Francisco Bay is an ideal site for a free port. 

In the arguments and data appended to this report, contributed by subcom- 
mittees, and which are incorporated herein in support of our conclusions, the 
argument from economy frequently appears. It may be reinforced in another 
way. The multiplication table, it must be remembered, will be industriously 
at work. It figures enormously in the balance of advantages. Even the smallest 
economy in handling freight due to the superior arrangements practicable only 
in a free port with well coordinated transportation systems and freight-handling 
devices, multiplied by the number of times the operation takes place in the 
course of a year, soon runs into fabulous figures. People are astonished to 
be informed that it often costs as much to transfer a box of apples from one 
part of a city to another as to ship it across the continent. And similar amaze- 
ment will follow the institution of a free port where, under freedom from cus- 
toms interference, cars, ships, warehouses, and all the other means and methods 
of collecting, transporting, sorting, cleaning, packing, grading, and other manipu- 
lation of goods and materials, are brought into closest juxtaposition and con- 
sequently where all these intricate and complex things may be done with the 
minimum of friction, delay, cost, vexation, and loss. A saving in the smallest 
point of the entire operation, multiplied by the endless repetitions of the same 
thing year in and year out, what will the figures amount to ? Our new habts of 
thrift may give some faint idea of the total. 

Opponents of the free-port policy will point out that our present enormous 
foreign trade has grown up in the absence of the free-port policy and that it 
will undoubtedly develop indefinitely under the present system of customs col- 
lection, with such modification as may be suggested by experience as we go 
along, and that such a radical departure as that involved in the establishment 
of free ports is for that reason unnecessary and, because of the cost and con- 
fusion of the proposed changes, unwise. 

It is plain that the argument for the new policy will fail unless we demon- 
strate that the gains in efficiency and economy will probably outweigh the 
costs and other disadvantages of the change. 

GIVE FOREIGN COMMERCE WINGS, NOT SHACKLES. 

Anything like an exact calculation of such obscure and complex factors is 
extremely difficult, but our best judgment, based on the experience of foreign 
ports, a working acquaintance with our own present customs and harbor sys- 



40 FREE ZONES IN PORTS OF THE UNITED STATES. 

terns, and a study of the question in the abstract, has convinced us that under 
a free-port system foreign trade will be expanded and its profits enhanced in 
the following ways : 

First. It is self-evident that reexportation, even in original packages, will 
be facilitated, speeded up, and cheapened if the goods and materials do not 
have to pass through the customhouse at all. 

Second. Storage in nonbonded warehouses will be facilitated, accelerated, and 
cheapened. The ideal arrangement is to have them right alongside the land- 
ing places. Right alongside the warehouses should be the railroad switch 
yards, connected up with the many transcontinental and State systems that 
may be brought to the wharf directly or by a connecting belt-railway switch- 
ing system. The bonded warehouse would not be eliminated but would be pro- 
vided outside and not inside the free zone. Its present advantages could thus 
be retained. 

Third. Inside the free port repacking, blending, mixing, cleaning and other 
legitimate commercial manipulation of merchandise destined for reexport is 
facilitated. These things can go on in the warehouses of the free port or in 
open places provided. In bonded Warehouses these processes are " cribbed, 
cabined, and confined "in a way that not only seriously impedes but often in 
instances totally prevents the business. 

Fourth. Foreign merchants can maintain sample or consignment stocks 
therein without duty unless finally admitted into the country. The customhouse 
only protects itself from smuggling. That would be a great advantage. It 
has been proposed, since the Panama Canal opened, to have a perpetual expo- 
sition of goods on the Isthmus, where foreign and American merchants could 
maintain sample and consignment stocks. That would be advantageous to 
both sides. And why not in free ports elsewhere? 

Fifth. Quickened and cheapened distribution of goods into the interior or to 
other nations on our other frontiers. This would tend to build up distribution 
centers. The geographical location and the topographical features of San 
Francisco Bay make it ideal for a vast distributing center and international 
market place. 

Sixth. For steamships, emphatically, " time is money." If we could eliminate 
or materially lessen the delays due to the customhouse, so much the better for 
the ships already in the trade; so much greater the inducement for other 
ships to come. 

Seventh. The free port tends strongly to make ships sure of cargoes both 
going and coming, by making practicable the distribution of incoming cargoes 
to, and the assembly of outgoing cargoes from, tributary territory, thereby 
attracting ships which would otherwise go elsewhere. 

Eighth. The required facilities would be furnished for all freighting opera- 
tions between ocean and rail carriers and warehouses and to and from all of 
them without customs impediments until the freight was about to enter cus- 
toms territory. 

Ninth. It results in saving, due to such freedom, in time, labor, worries, 
and losses in transfer of freight. Handling, drayage, and other expenses would 
be reduced. There would still be customhouse brokers, but caroges would not 
have to deal with them or through them while the goods were in the free port. 
There is no doubt that their business would be simplified by an arrangement 
where the customhouse is at the gates of the free port. 

Tenth. From the pecuniary standpoint, the one from which we ultimately 
look at this problem, the returns must undoubtedly be correspondingly enhanced 
both to the carriers, ship, and rail, and to the merchants, importer, and exporter. 

Eleventh. The greater the natural advantages of the port from its geographi- 
cal and topographical features and from its market and trade connections, and 
the better its harbor improvements and facilities, the more surely and imme- 
diately and largely would the benefits flowing from the institution of the free- 
dom-from-customs control system be reaped. Freedom alone will not make a 
port big or prosperous. It is simply one of the desirable factors. 

ALL INTEKESTS BENEFITED BY FREE POETS. 

The free-port system certainly adds to the pleasure of foreign business, 
adds to its profits, and adds to its volume. 

The benefits may be considered from different standpoints. 

First. From that of the owners or charterers of the ships. It is self-evident 
that the ship's owners and the charterers would be benefited enormously. The 



FREE ZONES IN PORTS OF THE UNITED STATES. 41 

system would strongly tend to build up a self-sustaining national merchant 
marine. 

Second. From the standpoint of the merchants, importer, or exporter, the 
advantages are equally plain. 

Third. From the standpoint of harbor administration. If the customhouse 
toll gates were at the entrance of the free port, harbor arrangements would 
inevitably be in far better shape. The customhouse man and his necessary 
interference on the wharves would be eliminated. In our experience in San 
Francisco we found that many times consignees are unfair in a practice of 
making the customhouse an excuse for keeping cargoes on the wharf longer 
than they should be kept ; and freight congestion is alleged to be due to inade- 
quate wharf arrangements, when, in fact, it is frequently a case of juggling 
in order to secure free storage on the piers. It means much to the port to 
have this congestion reduced to the lowest terms. It is a very serious and 
costly detriment to a port to have the wharves piled up with goods because 
real, and frequently pretended, customhouse requirements compel it. 

Fourth, from the standpoint of customhouse admini tration. We are aware 
that this is one of the hard knots of the problem. From the customs standpoint 
the free port arrangements must,, of course, be entirely consistent with the sure 
and cheap collection of the customs tariff; but the experience of the free ports 
of other nations, even with high tariffs of a protective nature, would indicate 
that customs experts can find a solution of that feature of the problem. We 
appreciate the fact that the burden is on the advocates of a free port policy to 
show that present customs arrangements operate on foreign trade as a handi- 
cap of really serious proportions, that they not only increase unduly the op- 
erative cost of the foreign trade we now have, but also in all likelihood prevent 
new trade coming or otherwise hinder its growth, or give rival ports, without 
the e hindrances, just that much advantage in the contest. We have tried to 
keep the practical in mind and avoid anything that savors of the academic. 
In this view we sought the advice of experienced customhouse brokers, be- 
cause in the end the decision arrived at by Congress will doubtless be based 
largely on what may be thought to be the teachings of cm tomhouse experi- 
ence. An article on the subject from this standpoint by Mr. F. F. G. Harper, 
who has had many years experience in San Francisco as a customs broker, is 
appended and will no doubt be found instructive. 

Fifth, from the standpoint of the manufacturer. We refer, firstly, to manu- 
factures within the free port for export to foreign countries of products wholly 
or partly made from imported raw materials, which under the present system 
would be subject to duty in the first instance and upon which drawbacks are 
now allowed when exported. The drawback system is so little in vogus in San 
Francisco that our experience is an insufficient guide as to its real merits. 
The consensus of opinion is that up to date it has not been of much use. It is 
generally denominated by those who have sought to use it a nuisance rather 
than a genuine stimulus to such trade. We inmt leave the drawback question 
to the experience of larger manufacturing centers. Of course, if such manu- 
factures were centered within the inclosures of the free port, it would require 
just so much more land area — a consideration that, generally speaking, would 
probably confine that department of the free port within comparatively small 
proporations. 

Probably the principal advantage that the freedom of the port would con- 
tribute to the American manufacturing industry as a whole, not only in re- 
gions near the ports, but throughout the country, would result from the crea- 
tion in such ports of international market places for the assembly of foreign 
raw materials needed by our manufacturers. This feature of the subject is 
ably set forth at length in the New York article alluded to, and we leave the 
matter there. 

ADDITIONAL EEPOETS. 

We also append an article prepared by Mr. John Clausen, of the Crocker 
National Bank, on behalf of our subcommittee on foreign trade. 

His committee circulated questionnaires, of which a sample is attached, 
among those interested in the foreign trade. An admirable answer was re- 
ceived from Mr. J. H. Polhemus, of the Hamberger-Polhemus Co., a long- 
established firm of exporters and importers in San Francisco. We incorporate 
this in our report as written as an illustration of what our merchants have 
learned from actual experience touching on the free-port idea. 



42 EKEE ZONES IN PORTS OE THE UNITED STATES. 

We have accepted Mr. Kent's suggestion that until Congress has first de- 
clared in favor of a free-port policy by general legislation arguments in favor 
of a particular locality as a suitable site for a free port will not be oppor- 
tune. We recognize that they will be appropriate for later consideration, 
either by Congress, if it directly names the sites, or by the executive depart- 
ment or other bodies to which that duty may be delegated under general laws. 
However, as certain preliminary reports on the suitability of San Francisco 
Harbor, on both sides of the Bay of San Francisco, have been submitted, we 
take the liberty of forwarding them for filing, to be presented later at the 
proper time. 

CONCLUSION. 

In conclusion, we desire to emphasize the desirability of as quick a decision 
as possible by Congress on this weighty question. Space will permit of only 
the barest reference to the profound changes in the currents of the world's 
commence that will surely result from the World War and the full use of the 
Panama Canal. The enormous merchant marine in process of creation must 
continue to be used when peace returns. Preparedness for peace can not be 
neglected except for war measures, but should go on where consonant with 
them. And it is difficult to see in what better direction preparedness for peace 
could move than in perfecting our harbor facilities for handling foreign com- 
merce. The free-port arrangement is simply a gigantic harbor facility and, we 
believe, one that can be made mort fruitful in its application to our country. 
It will take much time and labor and money to carry it out, and the period of 
indispensable preparation should not be postponed longer than is necessary. 

Addenda. 

report op subcommittee on customs matters. 

We have given considerable time to the effort to obtain concrete examples of delays 
and expense that the importers and vessel owners have been put to by reason of having 
to comply with customs rules and regulations, confining ourselves to those that would 
be eliminated by the establishment of a free port. 

Very rightly it has been said that customs is the first and last word on this subject, 
and our committee has endeavored to forecast the movements of the foreign commerce 
of this port with respect to sources and classes of merchandise in order to understand 
where this increased commerce would encounter delays and expense due to customs 
supervision. We have also had to take into consideration that the present tariff is one 
mainly for revenue only and that another administration might revert to larger and 
more numerous protection features, and hence many articles, such as coal, hides, coffee, 
etc., in the line of bulk goods, and numerous manufactured or packed goods now on the 
free list might again become dutiable and require weighing, gauging, measuring, ap- 
praising, etc., as well as examination by the pure-food inspector, Bureau of Animal In- 
dustry, etc. Therefore, although we are able to report on some of the hindrances that 
have existed in the last few years, undoubtedly there are many more difficulties which 
existed under other tariffs and would recur with a change of tariff laws. 

In enumerating some of the advantages to shipping by eliminating customs control, we 
summarize as follows : 

SAVING OP TIME AND EXPENSE TO VESSELS. 

(a) Delays due to customs boarding officers would be obviated. 

(b) Prompt docking and uninterrupted discharge of cargo. 

(c) Omitting necessity of giving heavy bonds to customs, obligating steamship agents 
to pay any loss of duty by fire, theft, casualty, etc., and the consequent delay while 
these matters are adjusted with the customs. 

(d) Not being required to make application to customs, obtain permit and pay for 
inspectors' services when it was desirable or necessary to work early or late hours or on 
Sundays and holidays. 

(c) Bonded and/or foreign cargo laden or unladen at will. 

(/) Vessel's discharge not stopped because of some error or delay in customs papers, 
which, at times, besides the cost by reason of delay, has entailed fines to vessels ranging 
from $100 to $5,000. 

(g) Not being required to keep drawback goods separate from other cargo and give to 
the customs officials six official hours' notice before lading same. 

(h) No further holding of teams on the dock until customs inspector is able to check 
all bonded goods teams may have before loading on vessel, or unladen bonded goods 
teams may have for export vessel, bonded warehouse, or appraiser's store. This checking 
would be done outside of free port. Once goods were placed on the dock, either from or 
for the vessel, no customs delay could occur, thus securing more prompt clearing of 
docks. 

Considering the foregoing few items noted, it is easy to perceive that there would be 
a great saving in stevedoring and other charges because of frictionless handling, it not 
being necessary to stop and learn whether the customs had passed this or checked that 
drawback or bonded package if outgoing, or any and all packages if incoming, which, if 
it had not been inspected, would have to be passed by or moved aside until the customs 



FKEE ZONES IN POETS OF THE UNITED STATES. 43 

official was done with it. Also, if I understand correctly the methods in force at Ham- 
burg, a violation of the Chinese-exclusion act and violations because of the desertion of 
alien seamen in this port, would be practically impossible as to those vessels whose 
cargo was all foreign and could be discharged at the free port and take on otber cargo 
which had been assembled there for them, because then these vessels would not touch at 
other shores of San Francisco Bay, and the watchman of the vessel and harbor police 
would see that these people were kept on the vessel and the customs would be the guards 
at the other gate of the free harbor to stop them, provided they had eluded the first two 
systems of guarding. At the outer gate those with the right to enter the United States 
would be examined and passed, or they could be taken direct from the vessel on the tug 
to immigration station. 

All shipping men are very familiar, to their sorrow, with the very heavy fines paid for 
violations of these laws. We will note a half-dozen items of fines charged covering the 
recent record of a little over one year of fines assessed to vessels in this port out of about 
40 different causes : 

Vessel fined for failure to produce duplicate bill of health, maximum fine $5, 000 

Area for steerage passengers not posted, fine 340 

And additional fine against the master of 100 

Failure to include certain items on the outward manifest of vessels, fine 500 

Discharge of foreign merchandise without authority in absence of inspector, fine 
treble the value of merchandise and forfeiture of vessel. 

In this case the master had gone ashore, and the barge man and the mate, 
who were unfamiliar with customs regulations, agreed that the barge could 
receive cargo in the stream, remaining alongside vessel until next morning. 
But later in the day, as it appeared a storm was coming up, the barge 
man moved the barge to the dock. In view of these circumstances, the 

fines were mitigated to a charge against the vessel of 700 

and against the barge owner of - 200 

These were paid, with attorneys' costs, and there was also the loss of 
time in preparing and presenting defense, etc. 

Failure to make entry and enter merchandise at the customhouse 1, 800 

Failure to enter within 24 hours 100 

Bonds are now required to be given for residue cargo which is to be 
discharged at following foreign ports and in order to cancel said bonds a 
lading certificate or other evidence is required from abroad. This is a 
heavy obligation and it is sometimes difficult for steamship owners to 
obtain the necessary certificates to cancel said bonds. 

There are many more cases of minor infractions of our customs rules, some perhaps 
because the Government under whose flag the vessel sails does not enforce certain rules 
that we do, such, to give a few examples, as those in our so-called seamen's bill, those 
laws requiring the marking of part of the equipment of a vessel, and the maintenance 
of two compartments exclusively for hospital. Frequently, fines are assessed for break- 
ing the customs seals, and for error in, or for not filing, complete store list of vessel. 
These fines are sometimes mitigated and sometimes remitted. But in such cases the 
offense has been trivial, or there were extenuating circumstances. Nevertheless, dis- 
charge of vessel has been stopped, master or owner has had to attend at the custom- 
house and expense has been incurred in defending the charge. 

The foregoing few items clearly indicate that a free zone, eliminating such annoy- 
ances and losses, undoubtedly is beneficial to vessels and particularly attractive to new 
liners or tramps, they knowing that costly fines and delays encountered with customs 
would not be possible at the San Francisco free harbor. For to steamships, most em- 
phatically, time is money, and the knowledge that all customs requirements were done 
away with would be the greatest inducement possible to offer for other ships to come 
to this port. 

A seaport originates and grows principally because of the export and import trade of 
its own country. But the facilities developed for this trade render such a port also the 
natural center where trade between neighboring foreign countries will focus. The small 
ports of Mexico, of Central America, even the Atlantic ports of South America, can not 
have direct sailings to and from all oriential ports. It will be natural for many of the 
goods from these ports to be transhipped here, especially as San Francisco is but 400 or 
500 miles off the great circle steamer track between the Panama Canal and the ports of 
China, Japan, and Siberia. But as long as we maintain a tariff, means must be pro- 
vided to diminish or eliminate entirely the avoidable obstacles which it presents to the 
class of trade just described. Three different plans have been devised. Two of them — ■ 
the drawback system and the system of bonded warehouses — are in use at American 
ports. If they were adequate, this report would not have been written. 

We should provide a better means of procedure for export trade, leaving the bonded 
warehouse to supply a necessary method of handling foreign goods for domestic con- 
sumption. 

THE BONDING SYSTEM. 

Under the bonded warehouse system, dutiable goods may, before the duty is paid, be 
taken from wharf to warehouse, whence at any time within three years they may be 
exported. At the end of three years the duty must be paid ; likewise, if it is at any 
time desired to use the goods in the United States, and to insure that the goods be not 
used without payment of duty, the hauling to and from dock and the storage must be 
done by business concerns who have given heavy bonds to the Government. In addition 
the owner of the goods must also be bonded in the amount of double the duty that would 
have to be paid should the goods be smuggled, lost, stolen, or destroyed. 

The movements of the goods have all to be under the supervision of customs inspectors, 
and the bonded warehouse is in charge of a customs storekeeper, by whom it is closed 
with a special Government lock during the noon hour and outside of business hours, so 
that not even the owner of the warehouse may enter during his absence. No work 
within the warehouse is possible outside of these hours without special permission and 
heavy expense for customs overtime. Goods must be piled so that they can be checked 



44 



FREE ZONES IN PORTS OE THE UNITED STATES. 



at any time by special Treasury Department agents. A multitude of other rules must 
be observed far too numerous to mention, so numerous in fact that they occupy thr *& 
chapters of the present customs regulations. 

It is obvious that the expense of the bonds and the required supervision in transit, 
upon receipt, while in warehouse, upon delivery, and again in transit not only direcaly 
increases the expense of handling and storage, but also indirectly through the slower 
movement entailed. 

There are other disadvantages altogether too numerous to be detailed here. We will 
briefly hint at one or two. Cases can be opened only when damage to the goods is 
threatened, and special permission first must be obtained and the work done in presence 
of customs officers. Goods can not be transferred to other cases, either in whole or in 
part. Duty if paid must be based on original value, and must be paid on full contents 
of the package, even when there has been deterioration during storage. We will merely 
hint at the expense involved in general orders to store goods as unclaimed and at the 
further stringent rules applicable to warehouses bonded for special classes, such as spirits 
and tea. Enough has been said to show that the device of bonded warehouses falls far 
short of meeting the requirements of a large foreign trade under competitive conditions. 

THE DRAWBACK. 

When the dutiable article is a raw material used in manufacture, either alone or with 
other raw materials native or foreign, the bonding system, of course, can not be used, 
and the customs provides that upon the export of such manufacture a rebate of the duty 
is granted on such part of the actual foreign material as is contained in the exported 
manufacture. To illustrate, imported chicle is used in the manufacture of cnewing 
gum'; imported feathers in making pillows and mattresses ; foreign tin plate was for- 
merly used in large quantities in making cans for our salmon and fruit. When the gum 
is exported the duty of 15 cents per pound on the chicle is subject to a drawback (after 
deducting 1 per cent) , and similarly, as to the feathers and the tin plate actually used in 
the cans. 

Here again, however, is a complicated and difficult system. The imported goods 
must be kept separate in the factory, its records must be kept as prescribed, and both 
goods and records must be open to inspection at any time. If the factory is incor- 
porated, its articles of incorporation must be filed at the customhouse; six official 
hours' notice of lading upon export vessel must be given, so that the inspector may 
be present and check the goods ; oaths to all transactions must be filed by importer, 
foreman, superintendent, and exporter ; trade secrets as to manufacture must be dis- 
closed. Finally evidence of foreign landing, or a bond to obtain such evidence, must 
be furnished. If all this and still other details be properly attended to, the drawback 
is payable 30 days after shipment. 

So complicated and unsatisfactory is this system that it can be used with profit 
only in a very large export business. Quite a few of our local merchants after ex- 
perience abandoned all thought of applying for the drawback. 

IMPORTATIONS FOR CONSUMPTION IN THE UNITED STATES. 

The matter of valuation is one of the most difficult features, and one about which 
all importers have at one time or another some trouble with the customs. The value 
must be the wholesale market value in the principal markets of the country or place 
of shipment at the time of shipment. Frequently goods are bought under contract, 
or for some reason the shipper sells at a lower price. The chairman of this sub- 
committee was recently told the following instance by an importer : Under a previous 
tariff hides were dutiable. A Mexican rancher had shipped some hides to this importer. 
In that country hides are a sort of by-product, of practically no value, so a nominal 
value was placed on the invoice. This was raised by the customs, and the importer 
was required to pay a heavy fine, the reason for which the shipper is naturally quite 
unable to understand. Using the Spanish for " never again," he is shipping no more 
hides to this port. 

A large shipment of refrigerated egg meat in tins arrived on one of our oriental 
liners some time ago. The goods could not be landed until arrangements had been 
completed to haul at once to a bonded refrigerated warehouse ; but there was no whole- 
sale market at the place of shipment, and the question of value required telegrams, 
cables, and much discussion with the customs and caused heavy expense because of 
delay to vessel, of overtime charges at vessel and at warehouse charged by draymen, 
stevedores, ship's clerks, customs inspectors, weighers, and customs storekeeper. In 
a similar New York case the importer to keep the vessel moving took a chance on his 
invoice value and had to pay some $30,000 in fines. 

In addition to the rules designed to insure collection of the duty the customs is 
charged also with the enforcement of certain other complicated laws, such as the 
Chinese-exclusion act, the pure-food law, the laws under the Bureau of Animal Industry, 
the copyright law, etc. 

When damaged goods arrive they must be held on the wharf until the customs adjust 
with the importer. Frequently marks are obliterated. Sometimes the condition is 
such that it is impossible to get a count of the damaged portion. Consequently, there 
is apt to be a dispute involving the importer, vessel, and customs. The importer is 
not permitted to recondition the goods, because the identity would be lost or it would 
be impossible to keep such a check that proper duties would be paid. In many cases 
it is cheaper to accept the only method provided by customs laws and abandon the 
goods, provided that the portion damaged is more than 10 per cent of the shipment ; 
but the damage must be discovered and the goods abandoned within 10 days after 
making entry. 

THE FREE PORT AS AN INDISPENSABLE AID TO REEXPORT TRADE. 

Enough has been said to show how utterly impossible it is to think of our con- 
trolling any large amount of the transshipping trade between foreign ports until some 
means is adopted to avoid entirely the customs barrier as regards such trade. The 
only method that has been suggested is the free port. 



FREE ZONES IN" PORTS OF THE UNITED STATES. 45 

We shall endeavor to illustrate by concrete examples the various advantages which 
have been set forth, and we think it can be shown that the establishment of free 
ports in this country would benefit not only the seaports at which they might be 
located but would also be of immense advantage to the export trade, to manufacturers, 
to banking interests, and to the country generally. 

The interrelations of the various factors of trade are such that each reacts on all 
the others. Any facility which increases trade thereby brings nearer the range of 
possibility larger facilities which would involve too much capital or too much space 
for the smaller trade. Increased quantities mean lower prices and cheaper freight and 
these again open new markets and again increase quantities. In this way the various 
advantages which we can anticipate if free ports be legalized would be cumulative, and 
the ultimate development might very well surprise the most optimistic. This aspect 
of the question should be borne in mind in what follows. 

GRADING, REPACKING, AND SORTING. 

If after goods were landed in the free port, sorting and grading by the importer 
showed that some portion would not be allowed into this country, such goods would 
be regraded and packed for any foreign markets available. If it were desired to ship 
two or three articles out of one case to Salvador and two or three others to Guatemala, 
and so on, it could be done. This would increase imports greatly, since, first, the 
cost abroad would be less (buying in bulk and unsorted, etc.), and second, the larger 
quantities purchased would aid in lowering the cost price. 

There are undoubtedly many articles that could be imported into a free port and 
regraded, repacked, or reconditioned, or small quantities of which could be taken out 
of one case and used to fill into cases with other goods suitable for certain foreign 
markets. As one example, beans. In 1910, when I returned from a trip to the Orient, 
I mentioned to one of the large bean dealers of this city that an immense amount of 
beans was to be had in Japan, Manchuria, and Siberia.' He replied that they would 
buy shiploads of this commodity if they were able to buy graded goods ; that the main 
trouble was that the oriental shipper did not know how to grade, or would not do it, 
and when the goods arrived here it was impossible for the importer to sell them. I 
expressed surprise because we grew beans to such a large extent here, but he said 
that the demand was so great that they could take any amount of beans and sell from 
this market if they only had a way of selecting, grading, and packing such goods in 
the Orient, so that when they arrived here they could be immediately sold and dis- 
patched. Manifestly, a free port here would put the importer in the position as though 
his beans were in the foreign country just outside of his door. In other words, he 
would step across to the free zone, do the packing, regrading, etc., himself, pay his 
duty on the portion which he desired consumed in the United States and export the 
other without molestation from officials. 

Other familiar examples are pepper from Singapore, rice from China, coffee from 
Central America, matches from Japan, and gums from Java. The resorting, regrading, 
repacking, etc., of these goods into such shape as is necessary for customers at other 
foreign points, our merchants caD not handle because of customs hindrances, whereas 
a free port would permit all of this. 

Very recently the customs regulations have been changed as to the bonds given by 
Importers so that one bond given by an importer obligates him to fulfill all of the 
terms of the laws under the customs and other before-mentioned acts, and it frequently 
occurs that shippers sometimes without knowing better, and at other times for the 
purpose of " getting by," send articles to importers which are in violation of the afore- 
said laws and the importer knows nothing about it until after his entry has been made 
and he has become the victim and therefore must pay the penalties. Had the goods 
been landed at a free port, he would have taken his samples, probably place some of 
the goods in warehouses of the free port, and there made his entry for those goods 
which were in the proper condition for making entry. 

A free port would obviate much of the disturbance incident to a change of tariff. 
To illustrate : Coffee, tea, and other commodities, which are free of duty are collected 
at this port, often in small lots, and when foreign orders are received, they are filled 
from these shipments. When upon our declaration of war, it became necessary to 
devise additional taxes, it was proposed to levy a duty upon these commodities. What 
a furore this created with the trade. Contracts for either foreign or local trade, made 
at prices based on no duty, could not have been filled without loss, because it would 
have been impossible to find transportation for a sufficient quantity before the new 
law would have become effective. If we had had a free port the foreign trade would 
have continued without interruption, while, on all goods finally entering the United 
States for consumption, the Government would have received its duty in due time. 
Furthermore, owing to the increase of business which this existence of a free port 
here would bring about, as previously explained, the stocks on hand, being graded and 
awaiting foreisn orders, would have been so much larger than were actually on hand, 
that existing local contracts could have been completed before the duty would have 
become effective. 

Recently an order came here from Russia for 100,000 bags of coffee. Had coffee 
not been free of duty and no free port here, this market could not have had that trade 
because the answer to the prospective buyer must have been : 

" It is too had, but we have paid duty on this coffee and can not now quote you 
a good price." 

BENEFITS TO THE INTERIOR TO THE WHOLE UNITED STATES. 

Although it might seem that the freedom of the port would contribute mainly to 
the encouragement of importations from foreign ports, yet it is manifest that such 
encouragement to come to this port would thereby be given to so many steamship lines, 
and to tramps and sailing vessels, that our whole State and other States of the United 
States that produced anything suitable for a foreign market would also be very greatly 
benefited, because there would always be vessels here ready to move their commodities. 
The interior merchant, manufacturer, and farmer would not find to his sorrow that 
his shipment was not on the ocean, but held with some thousands of cars of freight 



46 . FREE ZONES IN POETS OF THE UNITED STATES. 

in this port that are destined for the Orient, Australia, etc., for which we have no 
vessels and no warehouses, as is the condition to-day. And such loss would not be 
avoided in many cases, even in times of peace. 

As to Hamburg, I recall some 10 years or so ago, long before the war, a forwarder 
of Hamburg came to the United States and made contracts with large houses all over 
the Union, at both seaports and interior cities, to furnish them with their goods from 
Germany and Austria within a certain period. There was to be no uncertainty about 
receiving Christmas, Easter, or other seasonal goods, in time. He secured a large 
business. Necessarily, that meant that he visited the factories all over Germany and 
Austria, and instructed these people wben and how to forward the goods by rail or 
river or canal up to the free port ; here he sorted the assembled goods and marked 
them, and when the steamer arrived in the free port of Hamburg, the vessel got quick 
dispatch and the shipper low freight rates. There was no such disorganization as we 
have in recent years witnessed at east and west ports in the United States, loaded 
cars shunted here and there awaiting steamers, perishable goods spoiled, sales lost, 
because goods did not reach destination on time, and the interior farmer, merchant, 
or banker disgusted with efforts to do foreign business. 

In the free port of Copenhagen the importer can secure up to 75 per cent of the 
value of his stored goods. Though it is a little out of the province of this subcom- 
mittee, we may be pardoned for calling attention to the opportunities which the banks 
might anticipate through loans on goods temporarily in port. The large item of handling 
exchange on all the greatly increased shipments is obvious. 

It is recognized that we are a producing country now, with a surplus to dispose of, 
and foreign markets are absolutely necessary. 

Our people only faintly apprehend the degree to which our foreign commerce is 
dominated by customs control. Every move made by vessel or cargo, master, or im- 
porter respecting foreign goods must first have sanction of customs. 

We hear the cry of " crowded docks." " If we could only make consignees take the 
cargo away." You say, "Consignees make the excuse, 'Customs have not issued per- 
mits ' ; we want more docks," What good would more docks do other than to make 
more room on docks for importers to use as warehouses unless you get customs dis- 
patch? Does it not seem clear that a free port solves the problem as to foreign cargo 
and further, thereby, releasing other docks for domestic cargoes? 

THE OPPORTUNE TIME. 

America is now about to get its ships. Millions will be spent on the shores of this 
harbor for shipbuilding plants. Other millions will be devoted to harbor facilities 
to take care of the trade the ships will bring. We are told that the Government is to 
build fleets of river boats. The railroad terminals will be enlarged with reference to 
the harbor plans. A period of tremendous trade development is certainly imminent. 
Is all this to go on without any provision for the elimination of the intolerable friction 
inseparable from present arrangements? It is unthinkable. No comprehensive plan for 
harbor development can be undertaken unless provision is included for the establishment 
of a free port on such a basis that its facilities for years to come can keep abreast 
of the harbor's increasing trade. 

REPORT OF SUBCOMMITTEE ON FOREIGN TRADE. 

So numerous are the angles of approaching the subject of a free port or free zone 
policy that a great deal of time and space could be devoted to its discussion. 

The rapid and substantial growth of free ports operated by other nations, whose 
business consists mainly in transshipment and exportation, however, furnish convincing 
data in favor of such a national move. 

The universal testimony appears to be that a free port has aided immensely in 
quickly building up both the foreign and domestic trade of every harbor where it has 
been properly established. 

When we realize that Hamburg in 1913 had forged ahead until its foreign trade 
surpassed London by $100,000,000 and far exceeded Liverpool in imports, notwithstanding 
the fact that England is a free-trading country; that Hamburg's total foreign commerce 
was only $6,000,000 under that of New York, and that Hongkong surpassed New York 
in clearing foreign-trade tonnage several years before the war, Singapore advancing as 
a collecting and distributing center, and Copenhagen winning the trade of the Baltic, 
it becomes apparent that the free port is not a mere theory, but a practical producer 
of prosperity. 

Traveling and visiting many harbors, making observations and holding discussions 
with captains and shippers large and small, will demonstrate to anyone the important 
place that harbor facilities occupy in the commercial development of a city. 

Industrial and commercial development are dependent upon transportation. The 
efficiency of transportation, rail or water, is measured by the cost and speed of handling 
goods. 

Inadequate harbor facilities poorly correlated with railroad transportation are prime 
contributors to the high cost of living, as slow and expensive circulation of supplies 
inevitably add to their cost. It is obvious that the more hands through which goods 
pass from producer to consumer the more the public must pay. 

The war has made our people appreciate more than ever before that we can not 
claim or hold commercial supremacy if we are inefficient on the sea. 

At the opening of the Civil War American ships were carrying 70 per cent of our 
exports and 65 per cent of our imports. 

At the opening of the World War in August, 1914, Great Britain, Germany, France, 
Italy, Japan, Austria-Hungary, Russia, and Belgium controlled 72 per cent of the 
world's ocean carrying capacity, and although our foreign trade, exports and imports 
combined, amounted to $4,500,000,000, or more than one-tenth the world's business,, 
our merchant marine was capable of transporting only 9 per cent of it. 

At the end of the war we will have materially gained in tonnage, and Old Glory 
will be floating from the taffrail of a powerful merchant fleet. 

It is then that the need of free zones in the United States will become immediately 
apparent and immeasurably valuable. 

Your subcommittee on foreign trade sent out a questionnaire — a copy of which is 
hereto attached — to leading firms engaged in or interested in shipping activities, and 



EREE ZONES IN PORTS OE THE UNITED STATES. 47 

obtained much helpful information regarding advantages which a free port would lend 
to develop foreign trade through the port of San Francisco. This was supplemented 
by individual research and investigation, personal interviews, and discussions. 

As a result of this work we are able to present a resume containing a variety of 
arguments showing the benefits of a developed and properly organized free port. 

(1) Ports are tbe gateways through which commerce must pass. Every form of 
waste, wbether of time or money, that can be eliminated means to that section and 
to the country added facilities. 

(2) The establishment of free ports will tend to encourage new business and make 
land area more valuable as a terminal and cheaper as an entrepot. Traffic follows the 
line of least resistance, with saving of time, labor, and money. 

(3) By handling traffic more economically and expeditiously a free port or free 
zone will encourage and give impetus to surplus production, and benefit shippers, con- 
signees, and consumers. 

(4) Free ports will be the means of saving interest on large sums of money by 
precluding the necessity of tying up funds for customs duties whilst goods are held 
in warehouses. 

(5) Free ports will increase the speed and decrease the cost of receiving, transferring, 
and reshipping of merchandise. 

(6) Free ports accord facilities for unloading goods which may be stored, packed, 
mixed, assembled, manipulated, and even manufactured within the free zone with the 
greatest possible freedom. Manufacturers are accorded the privilege of exhibiting and 
demonstrating their goods, grading and altering same for domestic or export use. 
Buyers can examine, test, and compare the commodities of the world before making 
purchases. 

(7) Well-developed free ports or free zones in the United States stimulate the growth 
of exporting houses and enable them to hold goods for set periods without the pay- 
ment of duties, often equal to the cost of the commodity itself. Besides supplying a 
more convenient outlet for American goods, free ports will aid the American manu- 
facturers in need of foreign supplies by bringing raw material to our shores cheaply 
for subsequent import or export, as the needs of the trade demand. 

(8) The number, speed, and efficiency of cargo boats will be greatly increased and 
in this direction a free port becomes a vital factor in enabling us to meet the foreign 
trade demands that will be placed upon us after the war. 

The harbor of San Francisco, when it first met the enraptured gaze of Portola, 
November 1, 1769, possessed more advantages than others less richly endowed by 
nature. Since then its golden portals have been open the year round and never re- 
quired dredging, maintaining a permanent unshifting depth of 48 feet. San Francisco 
Bay has always been able to admit the largest of the world's vessels, and all of them 
combined could find anchorage here and be sheltered in summer and winter from heat 
and cold, from heavy seas and squalls and storms. 

San Francisco is not only the gateway of the far West but it is the gateway to the 
Far East. More than half a century ago Bret Harte called San Francisco " the warden 
of two continents." 

Gazing out through the Golden Gate across the broad expanse of the Pacific, we look 
through the open door of China. What an inexhaustible market China would be for 
our products if we went after it. 

Japan, rapidly winning a place in the sun and becoming western in constitution, 
civilization, and commercial relationships, offers a most attractive field for our products. 

A warm welcome awaits American representation and American goods in all Austral- 
asian markets. 

The Philippines present a pleasant picture. Ten years ago we furnished the islands 
only 26 per cent of their imports. We now supply 50 per cent, and they would gladly 
buy the other 50 per cent from us if we could offer more adequate transportation 
facilities. 

As we look southward we see the Republics of Central and South America, with 
enormous trade potentialities. How vast this trade may become with proper attention, 
encouragement, and systematic development can hardly be overestimated. Our foreign 
trade statistics offer convincing evidence. 

The immediate effect of war upon industrial and commercial policies is undoubtedly to 
prompt nations to make themselves as nearly as practicable independent in all things 
necessary to life and the national defense. When the war broke out, Great Britain 
found that the product of the Australian lead and zinc mines was under contract to 
German firms and that neither in Australia nor Great Britain were there reduction 
works adequate in capacity to convert the Australian product into the munitions of 
war which were needed for the defense of the Empire. Likewise, the great textile in- 
dustries of the United States, Great Britain, and France were found to be largely 
dependent upon German dyes. 

In the long period of peace international trade relations had expanded and confi- 
dence in the maintenance of peace had grown until in many instances the industries 
of countries had become more or less interdependent. Even the neutral countries, as 
those of South America, have found themselves seriously inconvenienced by the diffi- 
culties attendant upon transportation, and manifest an inclination to diversify and 
develop their home industries to a greater extent than before. In all conferences be- 
tween representative men of the various dominions of the British Empire there is 
expressed a sentiment favorable to more intimate trade relations and to reciprocal 
policies which will tend to bring this about. It seems probable that steps in this 
direction will be taken, although serious difficulties are certain to develop when the 
attempt is made to reduce such a policy to tangible terms. 

It may be expected that the alliances established during- the war will influence 
trade policies to some extent after the war and that commercial treaties will be made 
with a view of recognizing and promoting the friendly relations which exist. The 
antagonisms, in turn, which have been developed between enemy countries will no 
doubt affect trade relations for many years, no matter what the terms of the treaty of peace 
may be. On the whole, it may be expected that protective tariffs will be in favor after 
the war, and that trade will be influenced to a considerable extent by cemmercial 
treaties. In this connection, it is to be considered that the United States, by reason of 
the great purchasing power of its people, is the most desirable marketplace in the world 
and should be able to obtain as favorable terms for trade as are granted to any country. 



48 FREE ZONES IN PORTS OF THE UNITED STATES. 

Questionnaire Addressed to San Francisco's Foreign Trade. 

1. What particular products imported or exported by your firm would be affected 
most favorably by the special facilities offered by a free port, such as expeditious and 
economical handling of merchandise and free access to and control of your own goods, 
packing, mixing, sorting, labeling, manipulating, manufacturing, etc., without the cus- 
tomary "red tape" and restrictions connected with bonded warehouses? 

2. What would be the specific advantages to you as regards the following : 

(a) Conditioning. 
(6) Assorting. 

(c) Repacking. 

(d) Stock carrying. 

(e) Firm sale basis for transactions. 

3. What dutiable foreign materials do you import and utilize in articles that you 
reexport ? 

4. What products have you for export that require imported raw materials to manu- 
facture ? 

5. What is your annual volume of drawbacks? 

6. What substantial benefits will be conferred upon shippers, local and inland, con- 
signees and consumers by attracting more cargo and ships, more transit traffic by making 
this harbor a base for transit and domestic imports? 

7. What opportunities for foreign trade expansion do free-port facilities offer? 

8. What do you consider the special advantage from an economic, industrial, and 
commercial standpoint that would result from the establishment of a free-port zone on 
San Francisco Bay, and what superior advantages have we to offer? 

9. General remarks. 

Answer to Questionnaire. 
[By J. H. Polhemus.] 

1. Practically every article that we handle or would hope to handle we would 
greatly prefer handling in a free port, inasmuch as we do not confine ourselves to im- 
porting goods to go directly to consumption in the United States, but operate overseas 
with many districts, continuously endeavoring to bring goods in from one section and 
forward them on to another. 

2. (a) Conditioning. — In regard to conditioning, the number of cases that can be 
quoted is unlimited. By way of mentioning a few, we might state that corn from 
Spanish America arriving weevily can be fanned, put in new sacks, and reexported to 
some other Spanish-American or other oversea market, and thus not make it necessary 
for the importer to agree to sell same in the United States under the pure-food pro- 
visions of " Not for human consumption." Lots of coffee that might arrive too low to 
pass Government specifications can be mixed and brought up to an admissible standard. 
Low grades of coffee can be shipped forward to the market and will probably reach here 
in quantity, so that there might be a considerable volume of cheap, low-grade stuff that 
might find sale in some Asiatic market, and the business might just as well be done 
from San Francisco ns from some European port. Goods that might become damaged 
by heat in hold could be examined and if their condition has changed so that they 
were not up to the standard desired by buyers in the United States the duty has not 
been paid. Goods damaged by salt water would not automatically come under the head 
of condemnation on account of quality under pure food, etc. 

(&) Assorting. — Various beans, gums, rices, etc., would afford distinct opportunities 
for taking advantage of the market. Goods that reached here and were considered not 
up to basis on which bought could be held in the free port and part accepted and part 
rejected. It would not be necessary to enter the entire amount covered by the bill of 
lading. 

(c) Repacking. — More stocks could be carried and be much more flexible. This would 
enable dealers to quote lower prices, as they would have a quicker turnover and not 
such high percentage interest per unit or dead stock with a prospect of a loss. To 
illustrate our ideas, in many parts of Spanish America some goods have to be packed 
for mule-back transportation, others in cases of a weight for llama transportation, and 
others in cases for cart transportation, etc. The currency in some countries demands a 
package that can be sold at an established money value which is current there, and 
goods are desired to come already in such packages, as matches, etc. Many firms wish 
their own labels, and this matter' could be facilitated. 

(d) Stock carrying. — One of the big factors in this heading would of course be the 
carrying of larger stocks, as there springs up a big steamer service. This is not 
guesswork ; it is a statement of fact based on what has happened in every other free 
port. Ships that go periodically from Europe clear through to some destination in 
Asia could much more readily call at San Francisco and discharge their carsroes. 
This means that instead of Vladivostok, or Darien. or Yokohama having a direct 
steamer from Europe everv 60 days, these goods could be brought in steamers that 
would nnich more readily find a cargo if destined to San Francisco and could go via 
the free port on steamers that would run continuously between here and the ports 
mentioned. Merchants would rather buy from San Francisco, as they would not have 
to tie up so much money in the stock, ordering same every two weeks instead of 
ordering a three or six months' supply at a time. The inauguration of such routes 
would lead to other commodities being brought in and markets found for them, which 
helps work up a trade route. 

It is trade routes that- work up the big business. Steamship owners know what a 
dead loss empty space is in their holds and would much rather keep their vessels con- 
tinuously running in an established trade route with full cargoes. 

In this connection it is well to call attention to a fundamental point that should not 
be overlooked, and that is that the authorities should settle on a few ports and make a 
drive to dpvelop them big. The big ports in the world have been developed by hard 
driving and concentration. 

(e) Firm sale basis for transactions. — This is of fundamental importance and can 
not be overestimated. Many illustrations that probably have been given by ourselves 
as well as by others might be explained at the moment as being articles that have not 



FREE ZONES IN PORTS OF THE UNITED STATES. 49 

any duty, but Congresses are continuously changing and tariffs in the light of past 
history are likely to change again. There is no reason why distribution to oversea 
ports should at all be interfered with by tariff consideration, which has only to do 
with the consumption of goods in the country itself. A free port would give a steady 
sale basis for a port and establish it on a firm basis as being an exchange market on 
the world's highway of traffic. 

3. This question we regard as being more applicable to those engaged in manufacture, 
but of course such an article as burlap is one that applies to 'every firm. 

4. We regard this question likewise as applying principally to manufacturers, and 
might call attention especially to fertilizing companies. 

5. No answer. 

6. Any merchant to-day has daily brought to his attention the opportunities that there 
would be for importation and exportation if he could get steamer space. Free ports 
develop trade routes and attract steamer space. As far as aid to the merchants 
in the surrounding country, there is no argument necessary to explain the advantage 
of being situated in a port that is directly connected with the different producing or 
manufacturing countries. 

7. In answering this question it is necessary to consider the institutions that are 
in all lines of legitimate activity, or, say, producer, banker, manufacturer, distributor, 
consumer. 

The producer would have outlets for his goods established by the inauguration of 
steamer routes, and therefore would have a wider field of marketing. 

The banker would bave the opportunity of financing many different lines of com- 
modities, and on account of better transportation facilities would probably be working 
in a market tbat would furnish a great deal of short-term paper, as well as have their 
field of opportunity in foreign exchange greatly enlarged. A number of commodities 
from different parts of the world generally equalize a demand for money, so tbat same 
can be kept constantly employed and would not make it necessary to seek employment 
through the stock market's demands. This is something that is greatly appreciated in 
Europe, as produced goods are real wealth and must necessarily have real value, 
whereas many of the quotable stocks are never considered by the average speculator 
on their real intrinsic value, but simply on what they will sell for as against tight- 
ness of money, etc. We believe that it is a statement of fact that articles of first 
necessity rarely stay for any prolonged time below the cost of production, and there- 
fore have a fundamental value. Stocks can go to almost any figure irrespective of 
what their face values or book values might show. 

The manufacturers would have the advantage of vdirect communication with the 
source of supplies and/or increased distributing outlet. 

Distributors : Jja. the established markets that are preeminently leaders and have 
had a long and extensive training practically all the exporting is done through export 
firms. These firms are almost ranked in the professional class on account of their 
intimate knowledge of the peoples, countries, trade customs, and general conditions of 
tbe foreign countries in which they operate. Such firms are already established in 
San Francisco, and any manufacturer of any commodity, whether he was located in 
Denver, Spokane, Eureka, or Sacramento, can send cuts and data to these different 
houses, who would gladly take them up with a view to presenting them in a proper and 
attractive manner, give advice as to writing the description in the language of the 
country to which they are addressed, and then bring them before the proper channels 
for distribution. The hit-or-miss system employed at present by every little manu- 
facturer endeavoring to spend a lot of money in useless advertising and sending out 
circulars in the wrong language to irresponsible accounts in different foreign countries 
is simply a symptom of nervous energy that will ultimately dwindle down to the 
proper trade distribution as explained above, and as has been worked out in London, 
Hamburg, etc. At a free port trained houses, as mentioned above, will continue to be 
represented and will be augmented probably by others. 

Consumer : It is always hard to tell just how much of any benefit will reach the 
ultimate consumer, but there is no denying the fact that direct handling and the 
creation of big openings of marketing opportunities, such as a free port, on account of 
its increased operation and activities, permit the landing and marketing of goods on 
a cheaper basis. The free port likewise tends to do away with temporarily high prices 
on account of shortages due to lack of steamer service. 

In regard to the advantages of San Francisco Bay, these can be divided into what can 
be termed natural and artificial. 

NATURAL ADVANTAGES. 

It is one of the finest harbors in the world, with plenty of deep water and area for 
dockage. It is never frozen up and is situated in a climate where goods keep well as 
regards temperature and moisture. When one realizes the amount of tonnage that is 
handled at, say, Singapore, where big ships have to lay off, or in Hongkong, where 
there is a great amount of moisture and heat at different times of the year, and 
handling is all done by lighters, you can realize what a natural advantage this port 
has. Kobe, which is doing a tremendous business at present, has only a small area 
protected by a breakwater, and it is necessary sometimes for steamers to lay out beyond 
it on account of no space. Steamers are attended by lighters. 

San Francisco is likewise located in a position that would very easily supply the 
other ports on the north and south of it, such as Seattle, Portland, San Pedro, San 
Diego. It is a natural place to break cargo and distribute. 

ARTIFICIAL ADVANTAGES. 

As regards artificial claims for San Francisco, we believe that there is no port on the 
Pacific that contains as manv merchants that have gone through foreign countries and 
done so much work to establish connections and get intimately in touch with the con- 
ditions of such countries and the requirements of their trade and the personality of 
their merchants, San Francisco's trade at the present time is almost all its own and 

140955—19 4 



50 FREE ZONES IN PORTS OF THE UNITED STATES. 

radiates on account of the activity of its merchants. In a word, the position of San 
Francisco can best be understood by anyone that is at all familiar with foreign trade 
by saying that if a man in any foreign country has any commodity, whether it is 
sugar, or coffee, or hemp, or beans, or anything else, he wishes to know what the 
market is in San Francisco, New York, London, and Hamburg. This is due to con- 
nections and banking, and the former took a great deal of time and represents a great 
deal of effort. 

9. General remarks. — The above having gone into detail quite extensively, we only 
wish to add that one of the great factors that hangs over 100 per cent of the importers' 
heads is Government red tape. There may be ways of handling many things, but if a 
merchant spent the time to study them up he would not have time to do any foreign 
business. The word " free " port in itself is a call to freedom of exchange which is 
like an invitation to the foreigner to trade, as he does not fear pure-food regulations, 
undervaluation fines, or any technical local laws of a country, and the merchant located 
in the free port reciprocates the same feeling in the same way. 

COMMITTEE ON FREE PORT. 

George A. Newhall, chairman, H. M. Newhall & Co. 

John H. Rosseter, vice chairman, W. R. Grace & Co. 

Hon. T. S. Williams, board of harbor commissioners. 

Hon. John H. McCallum, board of harbor commissioners. 

Hon. Richard J. Welch, board of supervisors. 

Hon. J. J. Dwyer, attorney. 

C. K. Mcintosh, vice president Bank of California. 

J. R. Hanify, J. R. Hanify & Co. 

Larry W. Harris, Ames, Harris, Neville Co. 

John Clausen, vice president Crocker National Bank. 

W. H. Hammer, president Foreign Trade Club. 

F. F. G. Harper, customs broker. 

C. J. Sullivan. Thrift (Inc.). 

J. H. Polhemus, Hamberger-Polhemus Co. 

Cary W. Cook, American-Hawaiian Steamship Co. 

E. O. McCormick, Southern Pacific Co. 

W. G. Barnwell, Atchison, Topeka & San Fe Railway. 

H. K. Faye, Western Pacific Railroad. 

Gov. George C. Pardee, Oakland. 

J. H. King, president Chamber of Commerce, Oakland. . 

A. W. Maltby, Concord, Contra Costa County. 

George S. Wall, Richmond Industrial Commission, Richmond, Calif. 

C. P. Converse, secretary. 



Resolutions Adopted by the Board of Directors of San Francisco Chamber 

of Commerce April 9, 1918. 

Resolved, That the San Francisco Chamber of Commerce approves the report 
to the United States Tariff Commission under date of February 28, 1918, made 
by the committee on free port appointed by the chamber ; and 

Resolved, That the San Francisco Chamber of Commerce indorses the idea 
of the establishment of free ports in the United States and urges Congress 
to enact as soon as possible suitable legislation therefor. 

I hereby certify that the above is a true and correct copy of resolutions 
adopted by the board of directors of the San Francisco Chamber of Commerce 
at a meeting held April 9, 1918. 

L. M. King, Secretary. 



Extracts from Report of Hearing- Held by the United States Tariff Com- 
mission in the Assembly Room of the Merchants' Association, of New 
York, December 18 and 19, 1917. 

William Haeris Douglas (chairman, subcommittee and foreign export 
committee of the Merchants' Association of New York City). Gentlemen of the 
commission, I have pleasure in addressing you on behalf of the subcommittee 
of the foreign trades committee of the Merchants' Association. Our associa- 
tion embraces the largest number of merchants of the city of New York, 
and therefore we speak for those members, although many will appear before 
you in person. The Merchants' Association sent an agent abroad to study 
this subject, and then we took this up ourselves through experts and engineers, 
and held public hearings. Those hearings were very enlightening, and 
quite extensive, as far as the personnel of the people who appeared before us 
is concerned, and they almost unanimously agreed that a free port or free zone 
would be a desirable thing to have, and that a desirable place to have it would 
be at the port of New York. 



FREE ZONES IN PORTS OF THE UNITED STATES. 51 

A free port is necessary, first, in order to attract shipping. That is what 

originates a free port If you can bring the shipping of the world to your 

doors by reason of any special advantages you can then very readily acquire 

the status of a great commercial country. You must have a few advantages. 
******* 

Now, just a word or two in connection with the drawback system and the 
bonded warehouse. Many people think that those two things make a free port 
unnecessary. A bonded, warehouse takes in goods. They must be estimated 
and weighed, but here we have not the legal right nor the space to repack 
and reassemble goods, both of which are essential. The inspection of those 
goods requires three or four days' time. It is true that you can bring the goods 
into this country by paying the duty, and that you can secure the drawback^ 
which is 99 per cent, if the goods are exported. But you have the interest 
loss, and you have the loss of customhouse values, and all those annoyances. 
Therefore, the opinion of every man is that those systems, while coordinated, 
are not according to his desires. He is afraid of them, and if you say he 
can put those goods in the free port and take them away as he pleases, he 
knows the situation and therefore he is not troubled with red tape in the 
customhouse or charges he is not familar with. 

When you come to the question of the merchants abroad, that is most 
important. A free port must and should attract the import trade to this 
country. There is no reason in the world, with our Panama Canal, why a 
large share of the raw products of the world should not come to our mar- 
kets, if we establish a free port with the advantages which I have mentioned. 
******* 

The exporter would go there, and the commission house would have to 
follow for two reasons: First, our port is congested, and we must hire ware- 
houses at high prices, and store goods. But it is not a useful system, as we 
do it at heavy expense of cartage and lighterage, whereas those charges could 
be eliminated or reduced to a minimum in a free port, 

The Chairman. You are speaking of domestic exports? 

Mr. Douglas. Yes. 

The Chairman. And not speaking about foreign commerce? 

Mr. Douglas. Not about foreign commerce. 

The Chairman. And your idea is that the great volume of domestic exports 
could be handled through the free zone? 

Mr. Douglas. I think every merchant would have to have some estab- 
lishment there within the zone. 

The Chairman. How big a free zone do you anticipate? 

Mr. Douglas. Not less than 300 to 500 acres. Some people say that 3,000 
acres would not be too large. 

Commissioner Kent. Is not that small? 

Mr. Douglas. If we start within 500, we might grow soon to 5,000. 

Commissioner Kent. Do I understand you to say you think most of the 
domestic export would go through the free zone? 

Mr. Douglas. Oh, no. When it is a question of the manufactured goods, 
and having the vessel on the berth through the regular channels, people to 
load her and regular commerce to ports in any part of the world, there 
would be no necessity to go to a free zone. The goods would come there from 
all parts of the country, and would go right on the vessel loading. The 
regular lines that are loading a regular vessel every 10 days or 2 weeks to 
Rio de Janeiro, or other places abroad, would probably not utilize the free 
zone as their loading place. 

The Chairman. Do you mean liners? 

Mr. Douglas. Yes. 

The Chairman. Would you do that also with vessels going straight, with 
complete cargoes, to foreign ports? 

Mr. Douglas. If they are loaded on the berth, yes. A great advantage 
to the exporter who is not a regular loader for other people is that he could 
accumulate his freight through a warehouse in the zone. When the vessel is 
chartered by him, he has his goods all ready for shipment. He sends his vessel 
there and gets her loaded and away from the port as quickly as possible. 
He does not have to do it by way of the regular liner, which sends goods 
regularly and takes goods for other people. The general idea may be that 
the regular liner taking freight, say, to Buenos Aires, is the only one that 
carried freight to Buenos Aires. That is not correct. All of the big mer- 



52 FREE ZONES IN PORTS OF THE UNITED STATES. 

chants do loading on their own account. That is the advantage of the free 
port. But smaller merchants would patronize the general lines of com- 
munication, and not go through the free port. 

Commissioner Kent. If a man with raw material wanted to collect a cargo, 
having some imported goods to be reshipped, and desired to mix them with 
some domestic goods for export, do you think he would go to the free zone? 

Mr. Douglas. Yes. It would be to his advantage to do so. 

Commissioner Kent. Would not that sort of disposition of the cargo put 
a large part of the port's commerce in the free zone? Are not the cargoes 
largely mixed, as it is? 

Mr. Douglas. The amount of export goods of any kind and description 
which would go through the free zone as compared with the amount that 
would go in the regular way, if the free zone were established, is a difficult 
question to answer, of course. My own opinion is that the free zone's im- 
portance would grow, and that ultimately 25 or 30 per cent of the exportable 
goods would go through the free zone. As to manufactured goods, unless there 
is mixing or assembling to be considered, they would not go through the free 

zone. 

******* 

I do not think the free zone would do away with the advantages which 

these freight and passenger steamers now have. 

******* 

The question of assembling is very important. The manufacturers are 

required to pay in accordance with the weight and size of their packages. 

If they can send their goods knocked down and have proper floor space, so 

that they could have men assemble the goods on arrival, that would be 

different. 

******* 

I want to make this country the storehouse of the world, as far as lies 
in our power. Now, when we have those shipping facilities which we have 
not had prior to this time, they will be a large factor in helping in that 
direction. 

That embraces, gentlemen, our ideas, except to say that we are thoroughly 
in earnest in this matter, and we thoroughly believe in the proposition. We 
believe it will be for the benefit, not only of our city, but of the whole country, 
and we believe the free zone should exist here and elsewhere. If we make 
a chain of free zones, you could have a free zone in the Philippine Islands 
and other points I have mentioned. I believe that inside of 25 years we will 
be the greatest importing and exporting country that the sun of the world 
has ever shown upon. The Philippine Islands are the natural point of the 
East. They are under our control to-day, and giving us that advantage, with 
the other advantages which free zones would give us here, we will have almost 
an ideal situation. 

Mr. Robert H. Patchin. I am the manager of the foreign trade depart- 
ment of W. R. Grace & Co., exporters and importers, and I would like to 
present a few views to the United States Tariff Commission through you 
gentlemen at this hearing at the Merchants' Association to-day. 

The natural growth of the import trade of New York has been enor- 
mously accelerated by the war conditions, and this has brought us face to 
face with the problems of the discharge and handling of our imports. The 
same is true of other ports in the United States. 

Whereas in the past, importers were given fair facilities by the steamship 
companies and wharf owners to distribute their goods, they are now pushed 
to remove them immediately on arrival of incur wharfage expenses, the steam- 
ship companies in many cases putting the goods in store for our account. 
We have just received a notification from the Panama Steamship Co. that 
certain sugar to arrive in a few days must be taken from steamer by lighters, 
as they will not allow us to handle on the dock. 

The congestion is becoming so serious that it is only a question of time 
when most goods will have to be handled twice, once from the steamer to 
some place where the goods can be sorted out, weighed, and distributed, and 
once to destination. The extra expense will operate to discourage the con- 
signment of produce to this port. 

The reason for this state of affairs is that the port of New York is not 
only chronically behind in its facilities as compared with its growth, but the 



FREE ZONES IN PORTS OF THE UNITED STATES. 53 

conditions arising out of the war have made this chronic defect more evident 
and shown that the port is not prepared for natural expansion. 

One great requirement is the preliminary separation of imports into three 
classes ; that is, free goods, dutiable goods, and goods in transit. 

Since the increase of wharf and storage space is urgent, the free-zone 
project becomes a phase of and must be considered in connection with the 
larger problem of providing more facilities for present and future require- 
ments. The free-zone proposition enables the simplification of the larger 
problem and in fact becomes an almost necessary part of it. 

?.: * * * * * * 

The establishment of the outer free zone would not in any way prejudice 
or render useless any facilities now existing. The present docks, warehouses, 
lighters, etc., would be relieved of their present congestion and still be fully 
employed with the constantly growing traffic of the port. 

One of our departments reports that the cost of handling wool, sugar, and 
cotton is now about double compared with the cost before the war — 1914. 
Besides direct cost, the congestion operates indirectly to increase the handling 
charges. Instead of being allowed to sort out and weigh the goods on the 
dock, they are now to a great extent forced into warehouses, although, were 
a little more time given, they could be shipped without further expense 
to the consumer. Moreover, in view of the warehouses on the water front being 
congested, we are sometimes obliged to send the goods to warehouses off the 
water front, and sometimes to warehouses of a poor character, involving high 
rates of fire insurance. All this is additional expense which under proper 
conditions would be unnecessary. 

The establishment of a free zone in the harbor of New York will bring to 
New York shipments from Asia, South America, Australia, and other producing 
countries for distribution not only to the United States and Canada, but also 
to Europe, the West Indies, and the east coast of South America. 

For instance, pepper will come from the East to be classified in New York 
according to the requirements of the various markets, and from New York 
shipped to Europe, South, America, Canada, West Indies, etc. This business 
was done previously in Hamburg. That brought to Hamburg money to the 
steamship companies that carried the goods, the docks and warehouses that 
held the goods, the laborers, the bankers who advanced the money, the 
shippers, and others. 

******* 

To establish New York as such an international center, the necessary Ameri- 
can merchant marine is now in course of development. The banking facilities 
are also ready, and all that is necessary is a free zone in which the goods could 
be stored, reassorted if necessary for the different markets, and, in general, 
handled without any of the restrictions inherent to the system of bonded ware- 
houses and drawbacks. 

Commissioner Kent. Do you think a free port would expedite the making 
up or assembling of cargoes? 

Mr. Patchin. Yes. Every time you get part of a cargo it would help you to 
finish it up with the balance needed. 

******* 

Regarding the commerce which has come to this country through disruption 
of trade routes, we may cite rice as one commodity which has come across the 
Pacific to San Francisco. Mr. Kent, at a hearing in San Francisco where that 
was brought out in some statements in relation to the blending and mixing of 
rice, will know the importance of what I am referring to. The imports of rice 
now come across the United States and go to Cuban, Central American, and 
Caribbean ports. This transcontinential traffic is so large that consideration 
has been given to its stoppage, since it takes up so many freight cars. 
******* 

In the same way cocoa and coffee have increased, and there have been large 
shipments of coffee to Vladivostok. I do not think much coffee was exported 
from San Francisco to Vladivostok before the war. 

The tea routes have been somewhat disrupted, and the presence of imported 
tea in large quantities at New York and New Orleans and San Francisco has 



54 FKEE ZONES IN POETS OF THE UNITED STATES. 

brought to these ports a very large number of buyers formerly accustomed to 
going to Europe. That has stimulated the export trade. 

There has been a movement of American cotton goods to South American 
ports vastly greater than that before the war, through buyers coming here 
from South America. 

Tin is moving in increased quantities from the Straits Settlements to the 
United States, and London's control of the tin market is not as complete as 
formerly. 

Pepper, which at a hearing in San Francisco was decided to be not pepper at 
all, it being a blend, gathered aud blended at Singapore, might also be men- 
tioned. 

At the present time there is an absolute conglomeration of imports for con- 
sumption in the United States, imports dutiable, which are placed in bonded 
warehouses, and imports on the free list, which move in a way of their own. 
I have tried to obtain the complete statistics of the movement of foreign pro- 
duce transshipped through this port. I have no doubt that the Tariff Com- 
mission has worked that out. 

******* 

Commissioner Kent. If you had a ship loaded very largely with free goods, 
coming directly into this country, and there was, say 10 per cent of the cargo 
that was dutiable, but destined for other countries, how would you handle that? 
Would you run your whole ship into the free zone? 

Mr. Patchin. You would not have to have bonded warehouses in the free 
zone. The goods would not be dutiable as long as they remained in the free 
zone. The free goods going into the United States would pass through the 
free zone and through the customs. 

The Chairman. Then there is the question as to the extent of the facilities 
available and the extent of the investment you have? 

Mr. Patchin. Yes. 

The Chairman. There might be a large increase of investments, and there 
would be no direct gain in the free port? 

Mr. Patchin. The policy to be followed would have fit the given needs. 

Commissioner Kent. Would it be your idea that if a free zone were estab- 
lished, that your firm would have its own specific warehouses or warehouse in 
that zone, or would you expect to use the common warehouses established by 
some other agency? 

Mr. Patchin. We would work either way, according to what was estab- 
lished. 

Commissioner Kent. It would be a question of price? 

Mr. Patchin. Partly. I think the merchants, exporters, and others would 
follow what seemed to be most advantageous for the general purposes of this 
scheme. If the free port could be filled with private warehouses, and in that 
way proved, to be less of a burden upon the entire community, that might 
influence them. 

Commissioner Kent. Would you consider that the big lines would have their 
own places in the free port, and they would be supplemented by berths and 
warehouses for tramps? 

Mr. Patchin. I should think so. 

Commissioner Kent. Or do you think it would be a matter of going into and 
taking a place by chance? 

Mr. Patchin. I do not think they would want to stand in line. 

Commissioner Kent. Have you considered the customs administrative rules 
and laws and the possibilities of changing them? 

Mr. Patchin. No, sir. Most of our exports are articles on the free list. We 
are not manufacturers, and the question of raw material does not arise. 

Commissioner Kent. You do not use the drawback system at all? 

Mr. Patchin. Very, very litte. I think the manufacturers enjoy that. 

Commissioner Kent. Have you any impression as to whether a considerable 
development of manufacturing operations might be expected in the free zone? 

Mr. Patchin. All the testimony I have heard and read on the subject implies 
there would be, but it is usually in the form of a general expansion. It seems 
that the questions of fuel supply, houses in the neighborhood, to take care of the 
force, etc., would enter largely into that matter. I could offer no opinion of 
value regarding it. 

As Mr. Douglas pointed but, manufacturing is due to local evolution. 



FREE ZONES IN PORTS OF THE UNITED STATES. 55 

The Chairman. Your impression is that it is a transshipment business 
matter? 

Mr. Patchin. Yes, sir. It is largely shipping. 

Mr. Calvin Tomkins, 30 Church Street, New York City : We bring gypsum 
from Canada and manufacture it into plaster in New Jersey. It was free of 
duty for a time, and then a duty of 10 cents a ton was imposed. That does not 
pay the cost of weighing the material. The Government avoids the responsi- 
bility of .weighing by throwing it on the importer, who weighs the material 
at his own expense, which adds to the charge, and the Government expenses 
take up what there is in the drawback. We had the drawbacks for a number 
of years on the material we exported to Cuba and South America. 

The Chairman. Did you export much? 

Mr. Tomkins. Not much, but it was growing. The whole system is absurd, 
as the Government does not receive the cost of weighing. 

The Chairman. With respect to your particular commodity? 

Mr. Tomkins. Yes. The drawback was a small item not worth bothering 
about, and we dropped it. 

When I was at Hamburg five years ago, I was informed that the free-port 
idea was not popular with the Imperial German Government. It was a survival 
of the free-city privileges, and was one of the privileges which the city saved 
to itself when it entered the Imperial Customs Union. Its retention was a con- 
sideration for going into the Imperial system, and its importance was rather 
exaggerated. At least, that is the impression I received at Hamburg — because 
of the burdensome and restrictive regulations imposed by the German Govern- 
ment. 

The free-port privilege at Bremen was not used because the Government 
there threw so many harassing restrictions around it that it was not worth 
contending with them. At Lubeck the same conditions prevailed. I did not 
go to Copenhagen. 

I hope the idea will take root, so that the country can be in position to ex- 
change its commodieits with those from abroad to advantage. 

Mr. It. S. MacElwee, lecturer in economics and foreign trade, Columbia 
University, New York City : 

I should like to add to Mr. Tomkins's statement that there are two other 
free ports in Germany — one at Bremen and the other at Emden. At Emden, 
the Government introduced the free port. The antagonism is not between the 
Government and the free ports, but between certain interests and the free 
ports. There are several free ports established by the Imperial Government. 

The other point I wish to make at this time is : I happened to write my 
Doctor's Dissertation on the Port of Hamburg. I can give you the exact 
cost of every step and the percentage of the annual budget at the port of 
Hamburg. I have not them with me, but can furnish them. I stopped where 
Prof. Clapp commenced. My work on the port of Hamburg antedates that 
of Prof. Clapp, and if you would like to have it, I have one or two copies. 

The Chairman. Does the port pay for itself? 

Mr. MacElwee. The port pays. 

Commissioner Kent. Is there any sinking fund? 

Mr. MacElwee. Yes. 

The Chairman. How about operating expenses? 

Mr. MacElwee. They cover the operating expenses. I can give you those 
figures accurately if you desire to have them. 

The Chairman. We are interested to know whether, in your mind, the free 
port or free zone serves chiefly for the purpose of shipping and mercantile 
business, or whether it is important also to manufacturing? 

Mr. MacElwee. It is primarily a transshipping matter. It is the con- 
signment market. We might in this country manufacture binder twine and 
certain things of that kind in the free zone. 

The Chairman. Have you any impression as to the volume of additional 
transhipping business which would accrue from the establishment of a free 
zone? 

Mr. MacElwee. I think at first it would not be very much, but gradually 
we might build up American feeder lines to Canada, Mexico, and South 
America. The free port brings business. 



56 * FREE ZONES IN PORTS OF THE UNITED STATES. 

The Chairman. Have you any impression as to any kinds of commodities? 
You do not speak of any business going out through the free zone. 

Mr. MacElwee. It would have no effect. 

The Chairman. Would there be any probability of goods coming to this port 
for transshipment? 

Mr. MacElwee. Yes. It would bring a good deal. I do not see why an 
American free port should not supersede Hamburg, as it is the load factor 
in shipments. 

The Chairman. Now, as to the relative advantage of a free zone and the 
enlargement of the bonded-warehouse system. What have you to say on 
that? 

Mr. MacElwee. I thing Mr. Tomkins's bonded warehouse is a free zone. I 
think it is a little camouflage for the very radical protectionists who would 
feel that their institution of protectionism was being broken down. I believe 
the bonded warehouse would be a free zone. I do not see any particular 
difference. 

The Chairman. You would not abolish the present bonded warehouses, would 
you? 

Mr. MacElwee. No, sir. They are not abolished at Hamburg. 

The Chairman. Have you given any attention to the present course of legis- 
lation in the matter of bonded warehouses? 

Mr. MacElwee. No, sir. 

Mr. Lucious Root Eastman, Jr., president The Hills Bros. Co., New York : 

Most of my study has been as chairman of the foreign-trade cities committee. 
I concur in much that Mr. Tomkins and Dr. MacElwee have stated. We import 
dry fruits, dromedary dates, and currants from Greece, citron from the Med- 
iterranean. We repack and standardize these goods, and export to Mexico 
and other countries. This business brought us in contact with the drawback 
system. I have come to the conclusion that the manufacturing end would be 
largely an assembling of food products. With the use of sugar, and the draw- 
back on sugar, the difficulty which we experienced there has made the draw- 
back claims, in our own case, so complicated and there are so many points 
which are objectionable, that we dropped making such claims. 

The Chairman. The process of identification, too? 

Mr. Eastman. Yes. I dislike the use of the term " free port." I would 
prefer " free zone." I think the phrase " free port " creates the wrong idea 
in the minds of people not familiar with this subject. 

I am not sure that I can agree with Mr. Tomkins that the expanding 
of the warehouse system will give what a free zone will give us. The diffi- 
culty of policing, the difficulty of manufacturing in the bonded warehouse, 
makes it somewhat cumbersome. 

I would not take advantage of the expanded bonded warehouse in my own 
business, because of certain lack of freedom. 

The Chairman. That would seem to be inevitable under any conceivable 
regulation. 

Mr. Eastman. Yes ; and as the head of my company, in spite of the care 
we could give and the pleasantest relations between ourselves and the cus- 
toms people, we still got mixed up. 

Commissioner Kent. What are the troubles? 

Mr. Eastman. Identification of packages and manufactures. From my 
point of view, 80 per cent of my business comes in raw goods, and is used 
in this country. For the other 20 per cent which I manufacture, and which 
goes into Canada, I do not need the free zone. It would only be when I 
had developed my business to 50-50 that that question might come up. 

Commissioner Kent. Do you repack your dates at the bonded warehouse? 

Mr. Eastman., No, sir. We pay our duty on them and pack them in our 
packing plant. It does not make any difference whether it is a free zone 
or a bonded warehouse. There are to my mind possibilities of liberalizing 
the present methods of bonded warehouses and the drawback system, which, 
would relieve many of the things which bother the manufacturer and mer- 
chant to-day. For instance, the time it takes to get your drawback is really 
foolish. " 

The Chairman. We would like some suggestions on that point. 



FREE ZONES IN PORTS OF THE UNITED STATES. 57 

Mr. Eastman. We have been able by closely following it up to get bet- 
ter results, but when it runs into thousands of dollars the interest charges 
surprised me when I investigated the question. 

I think if there is to be, a free zone it should be limited to one, and not sev- 
eral in a port. I think there would be difficulty of administration if several 
were allowed. 

Also, I think the question is one largely of the expanding commerce of this 
country. That is the main strength of this country. 

The Chairman. Do you mean imports and exports, or the transshipping 
trade? 

Mr. Eastman. The transshipping trade is what is in my mind. It is only 
an element, but to my mind the free zone would be a very helpful factor in 
building up this trade. 

******* 

Alfeed Smith, manager industrial bureau, Merchants' Association of New 
York : 

Gentlemen of the commission, by far the most beneficial and far-reaching 
effect of a free port is on the transshipment trade, because this is the trade 
which is most hampered by customs restrictions and supervision. Commodi- 
ties entering transshipment trade are frequently shipped in large quantities 
and at a narrow margin of profit, and for this reason are especially benefited 
by any advantage which decreases costs, even if only to a slight degree. In 
a free port merchandise may be unloaded from the inbound ship, placed in 
warehouses, and reshipped at a future date without any customs formalities 
whatsoever, thus eliminating the cost and annoyance of the formalities con- 
nected with storing goods in a bonded warehouse. 

Transshipment trade is also carried on in a manner which differs con- 
siderably from ordinary trade. More and more it becomes the custom to 
sell commodities while they are still on the water, or to consign them to 
some port of the region of destination for sale and final distribution after 
arrival. This practice requires a large central port with adequate storage 
space, transfer facilities for the speedy handling of goods in transshipment, 
opportunity for unrestrcted division and consolidation of shipments, a large 
market in which to sell, and efficient and far-reaching transportation systems 
for distributing merchandise to ultimate destination after it has been sold. 
A free port with its great freedom from customs supervision, specialized 
storage facilities, steamship connections with all parts of the world, and its 
low charges offers an especially strong inducement for transshipment trade to 
center there. 

The so-called colonial products, such as rice, coffee, cocoa, sugar, cotton, 
wool, rubber, and mahogany, are fundamentally transshipment-trade products, 
In other words, a great part of the world's trade in this .type of product 
is not carried on direct from ports in producing regions to those of ultimate 
consumption; and during the shipment of such products cargoes are fre- 
quently divided, consolidated, and reconsigned. Furthermore, the shipment 
and sale of such commodities are peculiarly benefited by the facilities of a 
free port. Owing to scarcity of labor, capital, and cheap machinery in most 
of the countries which are sources of these products, and also because they 
can usually be shipped more economically in a crude state or in bulk, they 
are compelled to seek those centers where they can most cheaply be sorted, 
cleaned, refined, graded, mixed, and repacked. For such operations a free 
port is excellently adapted, and therefore has immense advantages over the 
ordinary transshipment center. 

A great center for merchandise is a powerful trade magnet, and in pro- 
ducing such a center a free port is very instrumental in increasing the com- 
merce of a port as a whole. A large and active free port clearing house for 
the world's merchandise guaranties full cargoes to all vessels entering it, and 
at the same time offers a market to which vessels can bring cargo as bal- 
last, which is certain to be sold at profitable prices. For this reason a free 
port promotes direct steamship service with ports hitherto reached only 
by transshipment service because of the difficulty of obtaining full cargoes 
for vessels bound to those ports, as well as the difficulty of disposing of parts 
of cargoes brought from them. 

A free port attracts ships on account of the absence of many of the usual 
formalities and the charges and delays connected therewith. For instance, 



58 FREE ZONES IN PORTS OF THE UNITED STATES. 

in the port of New York at the present time a preliminary permit must be 
obtained before a ship can dock and discharge its cargo, otherwise 24 hours 
must ensue from the time of obtaining the permit to the time of discharging 
the cargo. A six months' bond for $50,000 has to .be filed with the customs 
authorities. 

Commissioner Taussig. Is that inevitable and necessary? Can that be 
remedied ? 

Mr. Smith. I understand from telephone communication that it is un- 
avoidable under the present law. 

Commissioner Taussig. Is the present law unavoidable? 

Mr. Smith. I could not say, except so far as I know it is always the case 
in all ports. It has never been done away with in American and foreign 
ports; in fact, I think perhaps these formalities have been in use and vogue 
perhaps more in foreign than American ports. 

Commissioner Taussig. Then there is no disadvantage with American as 
compared with foreign ports? 

Mr. Smith. Not that I know of. A free port will take charge of that, al- 
though preliminary permits are almost always taken out by steamship lines 
and by most steamship agents in advance of the arrival of the vessel. Nev- 
ertheless, in some cases, the captain obtains his preliminary or regular per- 
mit after arrival, and this incurs delay. In speaking on this subject officials 
of steamship lines entering the free ports of Hamburg and Bremen have 
stated that the dispatch with which a vessel can enter and clear the German 
free ports is of distinct value to shipping lines. 

To some extent the direct import trade of the port is facilitated by the 
free port on account of lack of customs formalities and regulations. For in- 
stance, in the port of New York, if the importer has been delayed 48 hours in 
obtaining the necessary papers for getting his goods through customs, the mer- 
chandise is sent to bonded warehouses. This necessitates the formalities and 
cost of getting this merchandise out of the bonded warehouses before it can 
be shipped to the interior. 

Indirectly a free port, if it is successful in creating transshipment trade 
or promoting the import trade, will tend to bring more vessels to the port. 
This in turn creates additional cargo-carrying space, which is the reason 
why exporters will seek that port. A free port is of direct benefit to the in- 
dustries tributary to the port because of the great raw-material market which 
it creates. This raw-material market gives the manufacturer the advantage 
Df a near-by source of supplies, which may be obtained more easily, more 
ruickly, and more cheaply than if the market did not exist. Furthermore, 
the raw-material market created by the free port has peculiar advantages be- 
cause refining, grading, mixing, and similar privileges make possible the 
purchase of almost any grade or type of material desired. The ordinary 
manufacturer buying in a small or far-distant market is often at the disad- 
vantage of being compelled to purchase materials in inconvenient quantities, 
of unsuitable grades, long in advance of consumption, and without the op- 
portunity of personal inspection. As a result such a purchaser finds it a 
serious problem to purchase economically just what he needs and when he 
needs it. 

If raw materials are purchased at a free port for future use, the payment 
of customs duties may be deferred by storage in the free-port warehouses more 
economically and satisfactorily than in bonded warehouses. 

The experience of European free ports has shown that the creation of in- 
dustry in a free port is a minor result of its operation. 

Nevertheless, a free-port location offers great advantages to manufacturers 
producing chiefly for the foreign market and using extensively imported raw 
materials subject to a duty; such manufacturers will avail themselves of 
free-port locations. A free port is also an advantageous location for plants 
assembling foreign-made products both for reshipment and for sale in cus- 
toms territory.- 

The operation of the European free ports, both large and small, shows 
clearly that in order to be successful a free port must be located in a port 
advantageously situated for transshipment trade; and it is also shown that 
in order to take full advantages of free-port facilities a port must have efficient 
equipment and well-coordinated transportation system. This is true because 
a free port is chiefly a mechanism for facilitating trade rather than creat- 
ing it, although the creation of trade is undoubtedly an important result. 



FKEE ZONES IN POETS OF THE UNITED STATES. 59 

The above statements as to the effect of free-port facilities on commerce 
and industry are verified by the experiences of the free ports at Hamburg, 
Bremen, Copenhagen, and at minor European ports. 

******* 

Formerly London, Liverpool, and Hamburg were important ports for the 
collection of South American products and their distribution to the United 
States. For example, much of the Brazilian coffee reached the United States 
via Hamburg. London sold us quantities of Brazilian rubber. Our manu- 
facturers and importers purchased Argentine wool and hides and Peruvian 
cotton in European ports. If a great transshipment port and central mar- 
ket is created, in which surplus products can be disposed of advantageously, 
and to which therefore shippers and carriers will bring raw materials from 
all over South America, it will be possible to obtain a much greater portion 
of the products direct than was formerly the case. 

The United States and Canada have always bought great quantities of 
Australian, African, and far eastern raw materials in European ports. For 
illustration, East Indian spices have been purchased extensively through 
Amsterdam ; London has been the great market for Australian wool ; a large 
part of our imports of African rubber and mahogany come through Liver- 
pool. The development of a great free raw-material market would, to some 
extent, break down the power of the European ports in the African, Aus- 
tralian, and far eastern trade. 

The outbreak of the war came so soon after the completion of the Panama 
Canal that the trade routes through the canal have never been established. 
The completion of the canal has created a great opportunity for developing 
a collecting and distributing port on our Atlantic coast. On the one hand, 
there are the great raw-material sources of th,e west coast of South and 
Central America, our own Pacific coast, the Philippines, Australia, and New 
Zealand, and 'even more distinct regions ; and, on the other hand, there are 
the industrial nations of Europe, the United States, and eastern Canada de- 
manding raw materials and food products of the lands bordering on the 
Pacific. The determination of whether or not this trade will remain under 
the control of an American port or pass to the great transshipment ports of 
Europe rests largely with us. 

The free port in Hamburg has been one of the chief factors, if not the 
greatest, in developing the enormous transshipment trade and international 
market of that city ; the free port at Copenhagen has developed the transship- 
ment trade of that port; and the port of New York should receive as val- 
uable benefits from the creation of a free port as Hamburg or Copenhagen, 
for in other respects New York is now well qualified to develop transship- 
ment trade. 

While the greatest value of a free port would be the aid given in developing 
a transshipment center and a market for raw materials rivaling those of 
Europe, it would also have other beneficial effects which should be considered. 

After the cessation of the war activities there will be urgent demand for 
additional and more efficient facilities for the handling of the enormous ex- 
port and import trade which will undoubtedly come to the port of New Yoik. 
It will be unwise to install new and additional facilities in any manner ex- 
cept that which the experience of foreign ports has proved to be the most 
efficient. A study of the free ports of Hamburg, Bremen, and Copenhagen 
shows that the most efficient part of the port is the free district, to which a 
great part of the commerce of those ports drifts. 

Furthermore, the efficiency of the free districts of European ports rises not 
only from the excellence of ship basins, piers, and warehouses, but is a direct 
result of the operation of the free-port principle. Port authorities agree that 
maximum port efficiency can be obtained only through a combined efficiency of 
mechanical facilities and port administration. 

After the war manufacturers of this country will be endeavoring to capture 
new foreign markets, and therefore such manufacturers as use imported raw 
materials extensively would be able to locate export branch factories advan- 
tageously in the free port. This country is also to some extent an importer of 
foreign-made products which could be advantageously assembled in a free port 
both for sale in customs territory and reshipment to neighboring countries. In 
developing such industries a free port would create an addition to the industry 
of this country, for the reason that a large part of such operations would 
otherwise take place abroad to the benefit of foreign capital and foreign labor. 



60 FREE ZONES IN PORTS OF THE UNITED STATES. 

Based on the above facts, we maintain that a free port should be installed 
because the development of a great collection and distribution center, a great- 
international market, a center for more shipping lines, a transshipment point, 
and a more efficient port for the importation and exportation of merchandise 
would — 

(1) Promote the commercial supremacy of the United States in all parts of 
the world. 

(2) Directly benefit many of the industries of this country using foreign 
raw materials. 

(3) Create additional industry in the United States. 

The Chaieman. Have you in mind foreign dutiable raw materials? 

Mr. Smith. Yes; I understand from merchants doing business in foreign 
ports and merchants here, that a great many customs formalities apply to 
nondurable as well as dutiable goods, and that it is not the absence of duty or 
the absence of the particular formality which imposes a duty that restricts 
operations in a port, but it is the trifling delays, the annoyances, which prevent 
a district from becoming a free market, and it is the free market feature of the 
free ports, particularly at Hamburg, that make them valuable as a trade head- 
quarters, as merchandizing places. 

The Chaieman. Your raw materials have to get to the other parts of the 
country, and at the same time they have to encounter those customary formali- 
ties, free port or no free port. 

Mr. Smith. The point is, the raw materials remain for an indefinite period 
frequently in the port. 

******* 

James W. Reed, assistant engineer, board of estimate and apportionment, 
Municipal Building, New York City : 

I represent in a humble way the city of New York and its administration, 
and my attention has been given to free zones in this way : I was led to study 
the conditions surrounding and governing the growth of the commerce of this 
port, and from that to a consideration of the general factors which enter in;o 
the growth of commerce at a port. As I listened to the discussion this morning, 
it seemed to me that all we can ask the United States Government to do is i-j 
lift the barriers, if such exist, and permit us to have an additional advantage 
in this port, which we hope you will extend to other ports of the United Statei, 
as the natural advantages or characteristics of those ports will demand. 

The Chaieman. That is permissive legislation that you have in mind? 

Mr. Reed. Yes, sir ; permissive legislation. 

******* 

Mr. Robeet S. Guilfoed (representing the inward freight department of the 
International Mercantile Marine Co.). As we understand it, there would be no 
change in the present method of handling our ships, but a free port would 
do much toward relieving congestion on the piers as goods intended for the zone 
could be at once forwarded without loss of time through customs formalities, 
such as now pertain. 

A free port would also tend to greatly increase transshipping, resulting in 
increased business to the ocean carriers serving the port and offers a large 
field for expansion in the developing of new trade routes, and so forth. 

We feel that a properly equipped free port is to be desired. 

I can only say that as carriers we are interested in anything that means 
prompter removal of the goods from the piers. Under the free-zone system, we 
believe the freight would be removed quicker from the piers. 

Commissioner Kent. The question comes up as to how much of that demur- 
rage could be lessened by reform in the present customs laws. I would like to 
have you state, if you can, what delays seem to be inevitable in current admin- 
istration, and what would remain if an attempt were made to simplify the ad- 
ministration of the customs laws. 

Mr. Guilfoed. Many dutiable goods are weighed on the pier, and that causes 
delay. 

Commissioner Kent. How about sampling? 

Mr. Guilfoed. Sampling cases causes delay. If the free zone were here, that 
would be done in the warehouse. 

Commissioner Kent. Could you make an estimate of the average amount of 
delay that would be eliminated under the free-zone plan? 

Mr. Guilfoed. I should say four or five days, at least. 

Commissioner Kent. For each vessel? 



FREE ZONES IN PORTS OF THE UNITED STATES. 61 

Mr. Gtjilfoed. No ; but the cargo would be cleared from the pier that much 
quicker. 

******* 

Mr. Feed H. Reis (Loeb & Schoenfeld Co., 27 West Twenty-third Street, New 
York City). Our concern has been importing laces, embroideries, curtains, and 
handkerchiefs for the last 40 years, and most of their exportations to South and 
Central America have been direct from Switzerland or England. Our main 
factories are in Switzerland. Many of our direct exports were cut off by the 
war. We tried to do our exporting to New York, as a good many lines were 
discontinued, and many of them were lying on bond, many of which we would 
have liked to have disposed of. We had a good many cases where we could 
have disposed of our merchandise in bulk, but unfortunately we found the goods 
were not packed in the proper way. The duty on our merchandise in most 
cases in South and Central America is based on gross weight. The goods are 
packed in heavy boxes, with- heavy packing, which is one of the reasons why 
we could not dispose of our goods as we would have liked. We tried to gee 
permission from the custorushouse to repack the goods, even under the super- 
vision of the customs authorities, but the customshouse regulations did not 
permit the change of any package which goes into the customshouse or the re- 
baling or repacking of the goods in any way. 

Many of our customers would request part shipments of the mechandise, 
which was out of the question. We have, therefore, been compelled to ship 
these goods from New York to the British West Indies. There we have the 
goods repacked, and shipped thence to So.uth and Central America, with the 
permission of the customshouse. 

Commissioner Kent. In other words, you have to act as if Jamaica was 
your final shipping point. You have to have another transshipment point be- 
sides New. York? 

Mr. Reis. Exactly. At the present time we have to hold all goods in bond 
which we can not dispose of at the present time, as the goods are not packed 
right. We are very much of the opinion that some practical change such as you 
suggest should be made, eliminating the red tape, whereby we could reship 
some of this merchandise. 

A good many of our customers are purchasing our own goods through Eng- 
land, not coming here because the goods are not packed in the proper way. 

Commissioner Kent. Would you have to put up special buildings for this re- 
packing? 

Mr. Reis. i would suggest the free zone. W T e could possibly carry our goods 
into the free-port warehouses, and there repack any part of the goods as the 
customer desired. We could then take them out without paying duty. 

Commissioner Kent. In connection with your business, do any of the lines of 
clothing manufactured in this country use your goods? 

Mr. Reis. Lots of it. 

Commissioner Kent. Then, in that connection, you probably have to go 
through the drawback system? 

Mr. Reis. There is too much trouble about the drawback system to use it. 
We are not manufacturers of the goods on which our goods are used. 

Commissioner Kent. If you sell your lace to clothing manufacturers in New 
York and they export those goods, who gets the drawback? 

Mr. Reis. The manufacturer gets the drawback. If the goods could be iden- 
tified as having been imported into this country on a certain date, on a certain 
invoice that would be all right, but there is a great deal of trouble in that, as 
we might resell the manufacturers in New York. The goods might come in 
half a dozen different shipments, which must be identified in order to get the 
benefit of the drawback. 

Commissioner Kent. So that through the necessity of identification there are 
a lot of drawback losses? 

Mr. Reis. Yes. 

Commissioner Kent. Then, there is considerable difficulty in collecting the 
drawback? 

Mr. Reis. Considerable difficulty. 

Commissioner Kent. How about time? 

Mr. Reis. Lots of loss of time. Many manufacturers prefer to lose the draw- 
back rather than be held up by the present system. 

Commissioner Kent. A free-zone system would do away with all that? 

Mr. Reis. Yes. 



62 FREE ZONES IN PORTS OF THE UNITED STATES. 

Commissioner Kent. It has been suggested that one of the advantages of 
the free zone would be a permanent exhibit. 

Mr. Reis. We would prefer to get samples of goods going into the free zone 
to show as samples. 

Commissioner Kent. Do you have difficulty in the matter of having an ex- 
hibit now? 

Mr. Reis. No. Sometimes you get the samples much ahead of the goods. To- 
day we have many goods in bonded, warehouses of which we have not any 
samples. 

Commissioner Kent. If you have goods in the bonded warehouses and you 
want to get the samples out to show the goods around, can't you break the 
package ? 

Mr. Reis. No ; except under supervision. It .would be impossible to get the 
customers there. We tried it once. It did not work. The goods are mixed with 
coffee, tea, and something else of that kind, and they do not show off to ad- 
vantage. 

Mr. Samuel Ullman (chairman of the Board of Trade of the Fur Indus- 
try, New York City ) . I would like to be recorded as representing the fur indus- 
try and Board of Trade of the Fur Industry of the City of New York as being 
strongly in favor of the adoption of a free-zone system. You must realize that 
we are handicapped, and that this country has never awakened to the idea of a 
free port and free zone. We have never taken any real steps to accomplish any- 
thing. We have done all our work through the bonded warehouses. 

Now, we can not compete with foreign countries ; we can not compete success- 
fully and hold the large amount of trade and finance which has come to us, due 
to the closing of the arteries of commerce by reason of the war, unless we a r e 
in position to sell what we have to sell. We must be in position to bring their 
products to this country and be free from molestation of customhouse regula- 
tions. 

I understand some of the gentlemen here advocated the enlargement of the 
bonded warehouse for that purpose. That will not work. That will not accom- 
plish the purpose. 

You are, of course, undoubtedly well aware of what has been accomplished in 
Europe by the free ports established over there ; and you are undoubtedly pretty 
cognizant of the fact that the free port of Hamburg has been practically the 
instrumentality with which Germany has created its world-wide commerce and 
has been able to control it. 

The goods could be unloaded in a free port. You can grade and assort them 
and you can then deliver to the United States manufacturer what goods he de- 
sires. 

That can not be done in this country or any other country where the customs 
is unless you have a free port where the goods can be handled and repacked 
and shipped without the red tape of customs supervision. That can not be 
done unless we are to have those advantages. Unless we are to have those 
advantages, I do not see how we can expect to maintain to any degree at all 
the foreign commerce which has come to us, largely because they could not buy 
the goods in the countries where they formerly traded. 

The moment the war ceases and transportation becomes restored, you must 
see that unless we are in position to compete, we will not hold our gain which 
has come to us. 

I hope the Government will see the advantage of the free zone. I think 
it is for the Nation to consider that it is of the utmost importance for the future 
welfare of this country that some action be taken. 



Extracts from Report of Hearing Held by the United States Tariff Com- 
mission in the Rooms of the Board of Trade, Bourse Building, Phila- 
delphia, Pa., January 22 and 23, 1918. 

******* 

Hon. Thomas B. Smith (mayor of the city of Philadelphia). The establish- 
ment of a free port means the setting aside and segregating of a large area of 
land either in or adjacent to the city, where imported goods intended for ex- 
port may be received, stored, repacked, sorted, and blended, or manufactured 
and exported without the payment of tariff and with the avoidance of the 
cumbersome delays now prevalent, due to the present system of drawbacks. 



FREE ZONES IN PORTS OF THE UNITED STATES. 63 

The question of the freedom of the port, as I understand it, is altogether in- 
dependent of the protection or free trade policies which begin outside of the 
free port and end at its gates, but that its purpose is to encourage and facilitate 
the handling of cargoes intended for reshipinent or for distribution to other 
countries. 

It is claimed that free ports established in other countries have had a re- 
markable effect in the development of commerce, and it is urged that the 
establishment of free ports in this country would tend to the same end. If, 
after hearing the views of our citizens, you agree that the creation of a free 
port would improve the industrial and commercial facilities for making and 
handling products and increase the great oversea traffic of the country, it 
will then be necessary that cities be selected for the establishment of such 
free ports, and it is natural that the selection should be from those ports which 
lend themselves to the success of the project. 

A free port can not be authorized and made successful if it is set down in a 
location lacking in the very essentials of the idea. You must place it within 
an established port where the foreign trade is already a dominant factor; 
where the harbor facilities are modern and ample; where the transportation 
facilities are far-reaching and satisfactory ; and where the surrounding terri- 
tory is contributary in resources, industrial capacity, and population. You 
can not establish a free port on a small stream lacking trade and facilities and 
without a near-by country of productiveness and hope to build up a great 
commercial port. 

In the event of a free port being authorized for the city of Philadelphia, I 
am assured by the director of the department of wharves, docks, and ferries 
that his department is vested with ample authority to put the idea into effect, 
for under the act creating this department the director is authorized to con- 
struct such improvements as may be necessary. 

I wish to assure you that this city stands ready to take a foremost part in 
any plan which will aid in increasing the commerce of the port and advancing 
its interest. 

******* 

Commissioner Kent. Gentlemen, there is really no use in my making any 
long introductory statement. I think you all know what a free zone is, and 
I very much prefer the words " free zone " to the words " free port," because 
" free port " may carry with it the idea of a free city. You all know the 
physical requirements of a free zone ; the necessary isolation, the necessary 
transportation facilities by land and water, and the necessary equipment. 

This question, as far as the Tariff Commission is concerned, is the broadest 
kind of a national issue. We believe that at the close of this war, for many 
reasons this country will more and more look to foreign trade, and with greater 
justification. We have become a great creditor nation, and our debtors can 
not pay us in money ; they will be obliged to pay us in goods. That of itself 
will develop interchange of goods and foreign commerce. We shall find our- 
selves at the end of this war with a large mercantile marine, which necessarily 
will tend not only to need business, but to make business. And the free zone 
is a mechanical device for facilitating trade. It has nothing whatever to do, 
as you all understand of course, with any policy of free trade, protection, 
tariffs for revenue, or any other fiscal policy of the Government. If the free- 
zone system is good for anything at all it is valuable as a mechanical device 
for expediting traffic, for preventing demurrage of vessels, which amounts to 
a tremendous expense, and demurrage of cargo in foreign trade. 

If we are to go on with the idea of a vast increase in foreign trade which we 
have a reason to expect, I think we shall find on investigation that our exist- 
ing port facilities are either inadequate or partially obsolete, or both. 

The free-zone idea necessarily carries with it in most cases the idea of new 
construction, and new construction must also take into consideration the most 
modern methods of handling cargo and storing goods, the manufacturing of 
goods, and the mixing and blending of goods. 

I do not personally believe that the harbor facilities in the places that I have 
visited thus far are adequate, and the free zone, possibly necessitating a new 
construction, will carry with it as a necessary context the most modern methods 
and the most modern treatment. 

The question that we are here to discuss with you, and to get your views 
upon, is whether, in your opinion, the present laws that surround bonded ware- 
houses and the drawback system may be so altered and amended as to encour- 



64 EREE ZONES IN PORTS OE THE UNITED STATES. 

age a freer handling of cargo destined for export; or whether there is also 
needed a free-zone policy to be granted to those localities the commerce of 
which suffices and whose merchants believe that the benefits to accrue will 
justify a large local investment. 

Mr. J. S. W. Holton (president Maritime Exchange, Philadelphia, Pa.). 

* * * I realize that if the Federal Government were to undertake to estab- 
lish free ports throughout the country, and to hand them to various districts, 
there would be a free port in every river and creek in the country, and that 
it after all does come back to the section that considers itself industrially 
strong enough or knows itself to be industrially ambitious enough to establish 
its right to a free zone, provided it should be determined as a result of the 
investigation by this honorable commission that a free-zone system for the 
United States would be a national asset and be an important factor in meet- 
ing the opportunities of world-wide trade that are sure to come to the United 
States as a result of this war in a magnitude beyond the vision of any man 
who sits here at the moment. 

***** * * 

Because it has been shown that the free-zone system has been an advantage 
to all communities where it has been put in practice, we incline to the belief, 
reserving the right to change our opinion if the facts justify it, that the estab- 
lishment of free zones in the United States would be a valuable adjunct to 
the fiscal reforms that must be necessary to place the United States in a posi- 
tion to take advantage of these opportunities to which I have referred. 

While I assume that it is not within the scope of the commission's inquiries 
to consider any question with regard to merchant marine, before taking my 
seat I want to call your attention to the fact that the building, maintenance, 
and operation of a merchant marine in such proportions as will restore the 
United States of America to the place which she formerly held as a maritime 
power in the world is indispensable to the utilization of a free zone or any 
other system of tariff privilege or accommodation ; it is indispensable to the 
utilization of those opportunities to the extent that would at all make them 
justifiable. * * * 

Dr. Emoky R. Johnson (transportation expert, University of Pennsylvania). 

* * * I take it that the primary purpose of a free zone is to provide a con- 
venient and economical emporium for trade. Now, the United States as a 
manufacturing and exporting and importing Nation in the past and up to the 
present has not been a large trade emporium in the sense that London has or 
in a minor degree Hamburg or Rotterdam. If we are to establish a free port 
or a free zone at our most important ports, it will be for the purpose of facili- 
tating first of all the large transfer 'of traffic in those free zones. If that be our 
purpose, then we should inquire whether there is a prospect of our becoming in 
this country a trade emporium as London and Hamburg and other continental 
cities have become. Of course, I can not attempt to answer that question ex- 
cept in so far as certain facts may give indications of what the answer 
would be. 

I had occasion some years ago to make a study of the organization of the 
administration of the ports of London, Hamburg, Rotterdam, and some other 
continental cities, and then I subsequently was charged with the duty of en- 
deavoring to determine to what extent the commerce of the world would leave 
existing routes and change to a route through the Panama Canal. In connec- 
tion with that investigation of the probable use of the canal I endeavored to 
find out, among other things, how much of the trade that was carried on be- 
tween the Atlantic seaboard of the United States, the East Indies, China, 
Japan, and Australasia might be expected to leave the existing routes and use 
the Panama Canal. I found that it was very difficult to determine the amount 
of tonnage first of all of cargo that was being shipped from the eastern sea- 
board of the United States to trans-Pacific countries for the reason that a 
large part of that trade left the country for London and Hamburg and other 
trade emporia in Europe and was there transshipped, becoming practically in- 
corporated in the trade of Europe, and lost to the trade of the United States. 
The best we could do statistically was to form an intelligent estimate as to 
the trade between the eastern seaboard of the United States and the countries 
beyond the Suez Canal. 

Now, that merely is an illustration of the fact that up to the present war 
the United States has been trading to a considerable extent with other parts of 
the world bv way of London and Hamburg and, in a minor degree with conti- 
nental cities'. Is that to continue after this war is over, and for our particular 



FREE ZONES IN PORTS OF THE UNITED STATES. 65 

purpose is it to be expected that the establishment of free zones in New York 
and Philadelphia and New Orleans— speaking only of the Atlantic and Gulf 
seaboards — would tend to change our use of the commerce emporia of Europe 
and make our trade with foreign countries a direct one- and possibly turn the 
tide and cause European trade to be handled to a considerable extent by way 
of American ports? 

Now, we are going to have very much more shipping in the future than we 
have had in the past. We are going to have a larger trade with South America. 
We are going to have a larger trade with the Orient, and we are going to carry 
on that trade with the Orient by way of the Panama Canal. Can we expect 
that Europe's trade with the Orient would be transferred in part at American 
ports? The facts to be considered in connection with that query are these: 
Our heaviest traffic movement out of the country is to Europe, so that we have 
a large tonnage of shipping moving in ballast, or in part cargoes, from Europe to 
the United States. Freight rates in normal times tend to be low from Europe to 
the United States. Our trade to the eastern shores of South America has been 
light outbound and much heavier inbound to this country. If we had con- 
venient, economical free zones for the transfer of cargoes en route and for 
the necessary storage and classification of goods, I am inclined to think that 
with our larger trade and our increased tonnage on the ocean the cheap rates 
from Europe to the United States will bring to this country a considerable ton- 
nage of European trade for the Orient. 

Commissioner Kent. I am very much interested in this triangular move- 
ment. You say that the movement of trade is very much heavier from this 
country to Europe than it is in the opposite direction? 

Dr. Johnson. Yes, sir. 

Commissioner Kent. Does that mean that the American exports go to Ham- 
burg and from Hamburg back to South America in a triangle? 

Dr. Johnson. Yes; more from London to South America. That is due to 
what I have already said and also to the fact that Europe ships largely to 
South America. Trade moved from the United States to Europe in large 
volume and from Europe to South America. Vessels tend to pursue that trian- 
gular route, as you well know. Now, I am wondering whether conditions are 
not developing that will change that. 

Commissioner Kent. And keep vessels going both ways? 

Dr. Johnson. Yes; keep vessels going both ways. That is, if Europe can 
transfer goods economically at New York and Philadelphia and New Orleans, 
goods en route to the Orient and goods en route to South America, for freight 
rates to South America are relatively favorable from the United States. If 
those conditions may be protected and we have the free zone at our Atlantic 
and Gulf seaboards, I am inclined to think that the former routes of trade 
might be appreciably changed. Now, that would have been impossible as far 
as the oriental trade is concerned without the Panama Canal. The opening 
of that trade route from the United States to the East and the consequent 
establishment of a considerable number of lines between New York and 
Philadelphia and the Orient by the Panama Canal and the economy of that 
route for chartered vessels gives me the grounds for thinking it probable that 
New York and Philadelphia and New Orleans might become important trade 
emporia for the commerce of Europe, both with the Orient and with South 
America. 

Now, you have come, as Mr. Holton warned you, to the stronghold of pro- 
tective tariff where the word " free " is somewhat disconcerting. Personally 
that does not alarm me. I think it entirely clear that the establishment 
of a free zone, even in Pennsylvania, would in no wise militate against the 
maintenance of a protective-tariff system such as this community might care 
to see maintained. 

As to the possibility of our developing trade emporia 

Commissioner Costigan. Dr. Johnson, you speak of trade emporia. Do you 
mean in the sense of points of transshipment? 

Dr. Johnson. Yes. Perhaps I do not use the word accurately, but I am 
thinking of London as a great emporium into which goods come from all parts 
of the world and from which they are taken. The question you have raised, 
Mr. Commissioner, is the question whether with our existing bonded ware- 
house system we can look forward to a large transfer of trade. Personally 
I do not think so. I think the expense and delay to commerce and to shipping 

140955—19 5 



66 FREE ZONES IN PORTS OF THE UNITED STATES. 

involved in entering and clearing and going through the formalities and 
suffering the consequent detention would cause trade to be transferred prefer- 
ably at the ports where that can be avoided. 

Commissioner Kent. You think the bonded-warehouse system and the draw- 
back system could be ameliorated so as to permit the transshipment at points 
to be established here? Is it theoretically possible^ in your opinion? 

Dr. Johnson. I do not feel that I have sufficient information to competently 
answer that question. But the experience I have had in the last few months 
in licensing vessels to take on bunker coal and ship stores has given me some 
insight into the delays incident to getting a ship into a port and getting its 
cargo entered and getting its cargo aboard and clear. 

Commissioner Kent. As I understand the coal-bunkering plan, a ship leaves 
New York and goes to Norfolk for coal and it has to go through the process of 
clearing again. 

Dr. Johnson. They do during this war period. In peace times they have 
been allowed to enter Norfolk, we will say, take on coal and sail in 24 hours 
without entering and clearing at the customhouse. In the interest of safe- 
guarding the use of our ports for peaceful purposes for the present that is 
not possible. 

Commissioner Kent. What is your particular trouble concerning ship stores? 
You spoke of them. 

Dr. Johnson. I mean that it takes, as a matter of fact, in actual practice, 
several days to go through the process of entering and clearing a vessel. The 
process itself involves several days' detention of vessels, and the detention 
of shipping is, of course, a very expensive matter. It is expensive enough, 
in my judgment, to cause commerce and shipping to prefer ports at which 
that can be avoided. 

Mr. H. K. Mulfoed (manufacturer of drugs and chemicals, Philadelphia, 
Pa.). * * * Nearly five billions of dollars of merchandise are rehandled 
in foreign trade each year, and in order that our merchants and manufac- 
turers may enjoy an equal competitive basis we must be placed at least on an 
equally favorable trade basis. Reexport in well-organized business must 
assume an important integral portion of our export trade, and to foster the 
ease with which this reexport business can be conducted the free movement 
or transfer in a free zone is essential. Therefore what are termed " free 
ports " or " free zones " have been established in Copenhagen, Bremen, Ham- 
burg, Trieste. Through these free zones move a very considerable proportion 
of the rehandling or reshipments of raw materials. 

The full advantage of these free zones can be obtained only where the coun- 
try immediately contributory thereto is rich in facilities for manufacture and 
where the products obtained abroad may either be collected for distribution in 
foreign trade or may with proper safeguards be distributed to the manufac- 
turer. We have lost our advantages of being a carrier nation through our loss 
of shipping, but now, with the enormous increase of Government -built merchant 
ships, we will soon be in a position, we hope, to have as large, if not the 
largest number of cargo carriers of any nation in the world. To enjoy fully 
the fruits of a large merchant marine our export business should in every way 
be encouraged by our National Government. * * * 

The special advantages of a free zone are : 

First. Unloading and loading of cargoes would be facilitated, as the neces- 
sary time consumed in examination, levying or assessing and collection of 
duties would be avoided. 

Second. It would stimulate the number of ships, as the time saved in unload- 
ing and loading would materially shorten the length of time ships would be 
required in port and so increase their productive capacity. 

Third. Storage would be quickened and made easier, since the cargoes could 
be unloaded directly from ship to the warehouse. 

Fourth. Capital would be more actively engaged— i. e., be more liquid— 
because large sums would not be locked up in payment of duties and port 
charges and a large volume of business could be carried on with the same 
amount of invested capital. 

Fifth. Commerce would be stimulated because a free zone would induce 
larger direct cargoes to our American ports that now go abroad and from 
thence be transshipped. 

Sixth. It would be possible to make up for reexport what may be termed 
" blended " or mixed shipments. 



FREE ZONES IN POETS OF THE UNITED STATES. 67 

Seventh. Exporters could carry consignment stocks without paying the 
duty, and the duty need only be paid when actually admitted or cleared — 
i. e., imported into the country. 

Eighth. The more rapid and cheaper distribution of merchandise is effected 
into our own country or into other countries the greater the market is built 
up for redistributing the goods in export from the United States. 

Ninth. Freer movement of merchandise would increase our shipping and 
make for increasing full cargoes to be carried in inbound as well as outbound 
shipments. 

Tenth. It must necessarily develop our ports and add to our commercial 

prosperity. 

Eleventh. The facilities of rail connections, warehouses, and above all the 
building of factories in the free port or free zone must materially lessen time 
of delivery of merchandise and be of material advantage to the country at 

large. 

Twelfth. The most important reason in my judgment for the establishment 
of the free zone is in saving needless expenses, lessening the cost of carrying on 
an export business, and above all save the expenses now necessarily incurred by 
the cumbersome drawback system. 

While the system of drawbacks under which we are now favored is an 
incentive to the manufacturer to export his products, the necessary "red 
tape"— and I do not speak disparagingly of this— locks up for a long time, 
frequently 10 or 12 months, capital that would be profitably engaged in actual 
business transactions. The expense now involved in securing drawbacks 
represents a considerable amount of profit, and the saving would enable the 
American exporter or manufacturer to secure more favorable returns from 
his business endeavors. 

The free zone simplifies and makes it easier for the merchant to conduct his 
business, will develop our industries, and add to the general prosperity of the 
Nation. 

******* 

Commissioner Kent. Is it your opinion that the drawback system is neces- 
sarily and inherently cumbersome? 

Mr. Mulfoed. It certainly is, and I want to speak of that. 

Commissioner Kent. The reason I speak of that is that in the question- 
naires we have sent out we have had a number of replies to the effect that 
the trouble with the drawback system was in the men who rendered the 
service ; that it might be shortened. Now, we want to know just what happens. 

Mr. Mulfoed. That is what I am trying to bring out. What is necessary 
now in order to secure a drawback? First, you must apply for a Treasury 
decision so you may be allowed to make a claim for drawback. That means 
inspectors coming to your plant to see if you are hitched to do that kind of 
business. In other words, they are going to judge whether you shall or shall 
not engage in export trade. Second, you give notice of your intention, which 
notice must accompany the shipment to the pier. Third, you give a copy of 
your bill of lading or customhouse copy, which must be signed by the steam- 
ship company, showing the goods that were actually cleared. That is very 
necessary. Then you make out your schedule, and then this goes through the 
routing office in New York, which either approves or disapproves payment 
of the drawback and figures the amount to be paid. Any slight deviation that 
may be made in your invoice or in your claim for drawback may be sufficient 
to throw out your claim, and when you have quoted a price figured on secur- 
ing a drawback so that you can compete with your foreign competitor he has 
an advantage of the free zone. If you have made a slip, you are penalized 
and you lose your profit and you do business at a loss instead of a profit. 

What we complain about most seriously, however, is that after you do have 
your claim entered properly and it has been properly viscod and passed on 
by the Treasury Department there is delay in getting your money. It is not 
infrequent for from 6 to 10 months to be consumed before the drawback reaches 
the man who is entitled to it. That is an absolute injustice. The loss of that 
amount of capital makes it impossible for any except large firms to compete 
in export trade, and the very man you want to help, the smaller manufacturer, 
is precluded from doing business. We hope the small manufacturer under the 
new change of our law is going to be able to combine for export trade. What we 
would like to see done, gentlemen, so far as the drawback system is concerned, 
and we can not get the free zone, is to cut out the technicality in settlement 



68 FREE ZONES IN PORTS OF THE UNITED STATES. 

after the claims have been liquidated. In other words, let the Treasury De- 
partment return promptly the money which the exporter is entitled to receive. 
Now, what I am claiming is this, gentlemen of the commission, that any 
law or any form of procedure that makes it necessary for a business man to 
secure expert advice in order to get his own money back is wrong and ought 
to be repealed or modified. It is to be understood that the statements made 
by me concerning the time required in securing moneys from drawbacks apply 
particularly to the alcohol which is used as a solvent in the manufacture of 
drugs, pharmaceuticals, and chemicals. * * * 

Mr. W. O. Hempstead (O. G. Hempstead & Son, customs brokers, Phila- 
delphia, Pa.). * * * My understanding of a free port is a combination of 
warehouses and plants for the manufacture of merchandise from imported and 
domestic materials. The former would be in demand for storage purposes, 
for no other reason than the matter of storages, which undoubtedly would 
be in favor of importers over the rates charged for similar service by ware- 
housemen located in heavily congested parts of large cities, while the latter 
would offer very cheap acreages for the establishment of manufacturing plants 
that desire to manufacture merchandise partly from domestic and partly from 
imported materials for either foreign or home trades. 

Commissioner Kent. You consider the manufacturing part of a free port 
as very important, do you? 

Mr. Hempstead. For new lines of business depending on foreign trade I 
think the newly established firms will seek the acreage offered by the free 
zone to put up their plants. You could not expect manufacturers that are 
exporting goods to-day with the benefit of drawbacks to move their plants or 
to build new plants where they have them, because the present drawback law 
allows the return of 99 per cent of the duty paid on the imported article. 

Commissioner Costigan. There would be no particular manufacturing for 
domestic consumption, would there, in your free port? I mean under a sys- 
tem of protective tariff duty. 

Mr. Hempstead. I am not so clear on that. I think you would find facto- 
ries locating in the free zone. They should not be excluded, in my judgment. 
I looked at it from the angle that the factories could be located in a free 
zone with ample railroad facilities and connections as cheaply as in any other 
part of the surrounding city. I am speaking from the Philadelphia stand- 
point. 

Commissioner Kent. Would they go there with the idea of manufacturing 
for customs territory? 

Mr. Hempstead. Not unless they were interested in the manufacture of 
goods with the benefit of the drawback. 

Commissioner Costigan. It would be for foreign trade? 

Mr. Hempstead. It would be for foreign trade, but coupled with that some 
firms would make withdrawals of goods manufactured there for home con- 
sumption and pay the duties. I have recommendations on that point which I 
want the commission to take notice of. * * * 

In connection with the establishment of free ports, I desire to suggest to 
your commission that you recommend to Congress, in case it should pass a 
law authorizing free ports — 

First. All merchandise deposited in free-port warehouses should be ac- 
corded the same rights as if just landed from a foreign steamer. 

Second. It be optional with the importer to either make what is known as 
a consumption entry at the customhouse, or to be allowed to forward his 
merchandise in bond under the provision of the immediate-transportation act 
to any interior customhouse. 

Third. That the date to be fixed for valuation and classification purposes 
should be the date the. importer applies to the collector of customs in whose 
district the free port is located for his property, whether for consumption or 
immediate transportation without appraisement. 

Fourth. That the importer be relieved from furnishing a consular invoice 
for all or any portion of an importation that has taken advantage of the free- 
port privileges. 

In connection with your drawback interrogatories I can only say, as far 
as my own experience is concerned, that I do not consider there is any cause 
for change or modification in our present drawback system, except in one 
particular. I wish your commission in dealing with the question would rec- 
ommend to Congress to do away with the production of certificates of landing 
at foreign ports from United States consuls. 



FREE ZONES IN PORTS OF THE UNITED STATES. 69 

I would further ask that your commission recommend to Congress the 30- 
day feature in the drawback law be eliminated and authority be given to col- 
lectors of customs to make payment of drawback moneys upon the final com- 
pletion of drawback entries by the exporter and the return by the custom in- 
spector that he has personally inspected the loading in the outgoing vessel 
of all the merchandise covered by the drawback entry. * * * 

Mr. Mulfoed. Mr. Chairman, Mr. Hempstead said he differed from me in 
one particular about asking for a change in the drawback system. Do you 
make a claim, Mr. Hempstead, for drawback on goods which you manufacture 
yourself? 

Mr. Hempstead. No., sir. 

Mr. Muijtoed. You act as an agent? 

Mr. Hempstead. Yes, sir. 

Mr. Mulfoed. Then, I say, Mr. Chairman, that his objection comes from a 
different viewpoint. The system, as he works it out, now gives him business. 
As it works out with us, a commission has to be paid by a man to get his own 
money back. That is why we differ. 

Mr. Hempstead. I take exception to the remark that it is necessary for any 
manufacturer to employ an agent to recover his drawback for him. He selects 
one merely for his own convenience ; that is all ; and the one whom he selects 
makes a charge. But at the outset I understood the gentleman to say that it 
was necessary to have an application made to the Secretary of the Treasury 
for permission to export goods for the benefit of drawback. The regulations 
are like this : You form an idea of selling goods abroad made partially of 
imported material. You may arrange your steamship matters and are going 
to ship next week. You may file with the collector of customs a preliminary 
notice to this effect and ask the collector to make due examination. You 
also write to the Secretary of the Treasury asking the Secretary to make 
an examination through his various channels for the purpose of fixing a 
drawback rating. Now, when that drawback rating is established and ship- 
ments are made and the exporters have their papers in thorough condition, 
there is no need to wait six months or eight months or nine months for the 
collection of the drawback money. Especially has that been so since the be- 
ginning of the war. Prior to that, owing to a great congestion of business, 
perhaps, it was two or three months in some instances where the drawback 
duties were delayed in the payment. And you see I make the suggestion here 
of doing away with the first 30 days. No one can collect a penny of drawback 
until after the first 30 days as the law now stands. But. there is no reason 
why it could not be paid to-day, just as soon as you get your papers in shape 
and the customhouse officer says he has seen those goods put in the hold of 
the vessel. 

Mr. Mulfoed. My good friend is probably speaking of general merchandise. 
I am speaking of specific merchandise or goods with which we deal in our 
business, such as alcohol. We are collecting, now, drawbacks for 1916 ship- 
ments, and I defy anyone to get what is coming to him if he does not employ 
the services of some one who is skilled in getting these drawbacks. I think 
you will find that we have as competent brains as are to be found in ordinary 
establishments, and I must confess that we have not been able to do it, and 
Ave have tried. 

Mr. E. J. Lavino (importer of ores, Philadelphia, Pa.). The average cost 
for collecting the drawback, taking all the merchandise exported for the ben- 
efit of the drawback into consideration, is not 5 per cent. It perhaps does 
not average 3 per cent. That is largely reduced by such commodities as sugar 
and in prewar times tin plate. 

Commissioner Kent. What would be the average outside of sugar? 

Mr. Lavino. Outside of oil and sugar it would not be 10 per cent. 

Mr. Haeey B. Feench (Smith, Kline & French, manufacturers of drugs and 
chemicals, Philadelphia, Pa.). Mr. Chairman, I am here representing the 
drug exchange. I would like to know whether this is a discussion of the gen- 
eral fiscal policy of the Government or a discussion in regard to the establish- 
ment of free zones. 

Commissioner Kent. It is a discussion, Mr. French, not of the general fiscal 
policy of the Government, but a discussion of the necessary routine of the 
export business, and whether that routine would be simplified by a free zone 
and whether the routine of drawbacks and bonded warehouses could be bene- 
ficially simplified. It concerns the mechanical means of expediting foreign 
trade. 



70 FREE ZONES IN PORTS OF THE UNITED STATES. 

Mr. French. There are so many experts here in the intricacies of exporting 
and importing under the present circumstances that I can not add anything to 
the subject, except one remark that is called for by listening to the discussion 
that has gone on. 

Mr. Hempstead is our broker, but when it comes to recovering money from 
the Government it is a hold-up. I want to say emphatically that when we try 
to get money out of the Government T have never known that we have done 
it for less than 50 per cent of the amount recovered. Again and again I have 
remonstrated, but without success. 

I am here merely presenting facts to you for your future consideration. 
My impression was that this was solely a meeting for. the discussion of the 
establishment of free zones. I understand now that is only a part of the dis- 
cussion as to the methods to increase the facilities for import and export ; but 
I would like to say just a few words on this subject. 

* * * We merchants in Philadelphia can buy to better advantage goods 
in Africa and ship from Europe than we can direct. Therefore, in any dis- 
cussion of a free zone you must bear in mind that a free zone on the basis of 
the free zone of Hamburg is only efficacious when backed by governmental 
action in the way of a supply of a merchant marine power to stimulate the 
operations of this country. Otherwise the operation of a free zone on an im- 
portant basis, I respectfully submit, is of very small advantage. 

One way of looking at the free zone is a little affair where there is a small 
area established, possibly two bonded warehouses, where people are permitted 
to export goods without examination, and perhaps under certain conditions 
take goods out of this country into those bonded warehouses and mix them 
up and ship them. 

The other advantage is a so-called advantage of which Mr. Mulford, whom 
I regard as an expert in that particular, may have spoken to you. It is the 
export of our own products. Everybody who tries to export products partially 
made with imported goods knows the practically insurmountable difficulties. 
Every man who does that is naturally looked upon by the customs officials 
of America as a rascal who is trying to cheat the Government. The process 
of exporting is very difficult. I tried it one time, and if I did it I would have 
to give the history of the production of that product from its inception. What 
business of the customhouse official is that? They wanted to know its history 
and its grandfather — everything about it. 

Now, there is a greater advantage in the establishment of a free zone. In 
the establishment of a free zone, which implies a segregation of thousands of 
acres of land approached by waterways and shut off from all communcation 
with the rest of the world, surrounded like Hamburg, with a high iron fence, 
where water power can be obtained cheaply and where vast manufacturing 
establishments can be set up. If you correct the difficulties of exporting goods 
containing foreign products, you really have no excuse for a free zone, be- 
cause you have everything that you can get except this latter possibility, 
but that latter possibility opens indefinite future possibilities. 

I know of a manufacturing pharmaceutical house that has establishments, 
not only a vast one here, but one in Canada, one in Hamburg, one in Mel- 
bourne, one in Englnd, and others in various other countries of the world. It 
is easily conceivable that houses like that, if they could establish a manufac- 
turing plant in a free zone, such as here mentioned, would concentrate their 
manufacturing there, because it would be cheaper for them to manufacture 
their product in one establishment under such circumstances than it would be 
to establish all these various independent manufacturing plants. 

Gentlemen, in closing I would urge one thing, and that is that if any free 
zone is given and attached to the municipality it be done at the cost of the 
municipality. Otherwise, you open a pork barrel of indefinite dimensions. 
You will have exactly the same conditions as prevailed in the rivers and 
harbors bill. 

******* 

Commissioner Costigan. Mr. Godley, as a warehouseman do you see any 
danger that free ports will impair your existing investments? 

Mr. Philip Godley (Godley Stores, bonded warehouses, Philadelphia, Pa.). 

* * * n 0j S i r ; i d no t see any serious danger of that. As I said, I 
think there is bound to be sufficient local business within the confines of the 
city district itself, bearing in mind that any such facilites for a free port have 
got to be some distance from the city limits, which, of course, should be closely 



FKEE ZONES IN PORTS OF THE UNITED STATES. 71 

connected up with the hest of transportation facilities, and any free port 
should be a practical railroad terminal as well as a wharf and dock terminal 
for the ships. 

Commissioner Costigan. So, on the whole you look with favor on the estab- 
lishment of free ports? 

Mr. Godley. Yes, sir; as a general proposition I think it would be a good 
thing, at least for Congress to give the people the privilege and the opportunity 
to ava.il themselves of the chance of establishing free ports, if the merchants 
of a locality like Philadelphia, for instance, should conceive that they could 
build up a business sufficiently large for their making the investment. I 
should oppose strongly the Federal Government making any appropriations for 
the establishment for any section of the country. I think that would be a 
vast mistake. It should be done by the State or the municipality, or the two 
together, if private capital does not feel sufficiently encouraged to make the 
investment. 

******* 

Mr. Emil P. Albrecht (president Philadelphia Bourse, Philadelphia, Pa.). 
* * * 

I believe most firmly in the advantages to be derived from the establishment 
of free zones in our ports for the upbuilding of the foreign trade of our country 
in the years to come following the present war. 

It means that that tonnage must be utilized in the foreign trade after the 
war. and incidentally some method must be found whereby that tonnage can 
be utilized on a parity with the tonnage of other nations which are being 
operated at much lower costs, and it is true without the same advantages to 
their seamen that we have under the American flag. 

* * * If we have the facilities for properly and expeditiously handling 
them there is no reason why the vast quantities of raw materials which hereto- 
fore have gone to ports of Germany and England to be transshipped in part 
to the United States should not come directly to us and we then serve Europe 
with that portion which we do not require. 

Mr. L. G. Graff (president Commercial Exchange, Philadelphia, Pa.). Mr. 
Chairman, I have very little testimony to give. Representing the Commercial 
Exchange, I might state that the grain and flour are produced in such quantities 
in the United States that we become the handlers of an export commodity. 
We, however, are indirectly and vitally interested in getting as much tonnage 
to the port of Philadelphia as we can possibly obtain. We are also interested 
in keeping liquid the inbound tonnage as well as the outbound tonnage. If the 
vessels' in unloading their inbound cargoes can do so quickly it will help us 
to get vessels to this port. I believe that the proposed zone will expedite both 
the loading and the unloading of outbound vessels. 

Commissioner Kent. You would expect to take domestic outgoing cargo and 
put it in the free zone where it would meet vessels that come in and unload 
quickly their imported stuff and then ship out on them? 

Mr. Graff. We would expect to export grain and flour produced in the United 
States naturally on the vessels bringing in the cargo for the free zone. It 
might be necessary, and undoubtedly would be necessary in most cases, to 
move the vessel, but that would be a small matter. Grain must be loaded 
where the elevators are constructed or else floated to the regular line boats. 
If the inbound cargo at our free zone happened to be in a line boat and 
could not be moved to the elevator, the grain could be floated to that vessel 
while she is unloading. 

Commissioner Kent. Would you not anticipate putting up an elevator in the 
free zone? 

Mr. Graff. That is a thought that had not occurred to me, Mr. Chairman. 
The railroads might see fit to do so, or the Government. 

Commissioner Kent. Or the free-zone authorities. 

Mr. Graff. Or the free-zone authorities ; yes, sir. I hardly know of anything 
else that I can give you from the standpoint of grain and flour. 

Commissioner Kent. Your general plea for free-zone ideas would be one of 
generally expediting commerce? 

Mr. Graff. Yes, sir ; expediting and bringing additional tonnage to the port 
of Philadelphia. 

Commissioner Kent. And you think the free zone would tend to bring the 
commerce here? 

Mr. Graff. I believe it would, undoubtedly. 



72 FREE ZONES IN PORTS OF THE UNITED STATES. 

Commissioner Kent. If you could do away with demurrage would you, in 
your opinion, get two advantages; increase of efficiency in expediting vessels 
and such facilities that would tend to bring more vessels? 

Mr. Graff. Yes, sir. 

* * * * * * ' * 

Mr. Albrecht. Mr. Chairman, may I ask a question with regard to bonded 
warehouses? Is it not true that we have at present in certain industries, like 
the cigar industry at Tampa, a number of bonded warehouses where manufac- 
turing is carried on with success and where the policing must be done by means 
of one or more inspectors or watchmen to provide for that? 

Commissioner Kent. Yes; we have it in cigars, Mexican peas, and smelter 
output. 

Mr. Albrecht. And we have bonded distillers, have we not? 

Commissioner Kent. No ; that is under the bonded warehouse law. 

Mr. Taylor, just before you came in we were taking up the question of 
exclusion of non-German shipping from Hamburg. I have read the Hamburg 
book which I have here, and I found a very large percentage of English tonnage 
in Hamburg. We would like to know more about the detail of that. Is that 
the customs port of Hamburg or the free zone of Hamburg? Are foreign ships 
treated alike in both cases? 

Mr. Fred W. Taylor, of Philadelphia, Pa. They do not allow any regular 
liner, a line with regular sailings, from this country to the port of Hamburg 
or Bremerhaven. It is not possible for any capital to enlist boats outside of 
their control. That is a monopoly controlled by the German Government 
through their lines. 

Commissioner Kent. Could an American tramp boat go into Hamburg? 

Mr. Taylor. The tramp boat could go there. They use tramps largely. Their 
lines run between regular ports on regular dates. Those boats are not inter- 
fered with, but any excess cargo of grain from the United States to Hamburg 
or Bremerhaven would be taken on a tramp boat of any nationality. But no 
regular boat with sailing dates was advertised to those ports. That is the 
reason why it made such great growth in international trade. They had equal 
rights at South Dover with English lines. Then they went on with the balance 
of their German passengers and all of that was so much to the good. That 
was one reason why they had so much growth in the passenger trade in 
competition. 

I once asked an Englishman in the passenger line why they allowed that. 
He shrugged his shoulders and said, " Well, you know it is our English way." 
They went farther down in Trieste, where the Cunard Line attempted to open 
up a traffic between there and this country. The Germans went so far as to 
prevent that passenger traffic going through Trieste, through their political 
control. 

Commissioner Kent. Through Austria? 

Mr. Taylor. Yes. They also controlled and dominated the political policy 
of the Italians through their premier. They were studying out this thing with 
Government control back of them, and that is the entire secret of their great 
success. 

******* 

Mr. J. S. C. Harvey (representing John R. Evans & Co., Philadelphia, 
Pa.). * * * it seems to me that considering the free port or free zone 
proposition our first consideration should be as to what portion or share of 
the business of South American countries and other countries which are very 
large importers we expect to participate in. * * * 

We all realize, I think, that there is to be a grand reconstruction, and I 
think some of our fondest hopes probably are in favor of getting a fair share 
of business that has heretofore gone to Germany. That is true in our case. 
I have not paid so much attention to other lines of business. 

******* 

Commissioner Kent. The transshipment question is the one that has occurred 
to our commission as really the main feature. From all of our hearings we 
realize that the questions of manufacturing is relatively local. The questions 
of transshipment, of expediting the movement of vessels, and the movement of 
cargo, seems extremely essential; and the question as to whether that could 
be better done, all things considered, by amelioration of the existing system 
or by establishing a free-zone system is the important thing. We find such a 
difference of opinion concerning manufacturing that it really can be well cut 
out of present consideration. 



FBEE ZONES IN POETS OF THE UNITED STATES. 73 

Mr. Taylor. No regular line will leave its berth to discharge in that free 
zone. You might have certain parcels for the free zone. She could not afford 
to lose her sailing date. 

Commissioner Kent. Grace & Co., in San Francisco, testified that their freight 
vessels would go direct to the free zone. If they had a freight cargo that was 
largely free and partly dutiable, they stated that they would go right to the 
free zone. They would have their docks there and would make their sailing 
dates there. & 

Mr. Taylor. I am speaking now of movements by regular lines. Say there is 
500 or 1,000 tons by the Liverpool line. That boat will go to her own dock 
because she must discharge and get that all out. That particular parcel for 
the free zone would have to go by bonded lighter in some form to the free zone 
The boat itself would not go to the free zone. 

Mr. Harvey. Might not the establishment of the free zone change that Mr 
Taylor ? ' 

Mr. Taylor. Not the regular line. No regular line could afford to take the 
time. 

Mr. Harvey. I mean make only the one stop and make that at the free zone 

Mr. Taylor. They could not do it. That would require those goods to be 
taken out first. 

Commissioner Kent. They take everything out in the free zone. 

Mr. Harvey. Could not they discharge out in the free zone? 

Mr. Taylor. Owing to the cost of hauling, the regular line is going to get as 
near to the center of industrial activity as possible, and for that reason no 
regular line could be depended upon for free-zone delivery directly. 

****** * 

Mr. George P. Sproule (secretary to the commissioners of navigation, Phila- 
delphia, Pa. ) . * * * To any particular locality where the free port or free 
zone may be established it means the taking away of nothing that now exists 
nor will it disturb any of the existing conditions. The effect can only be 
additional business. It means that the immense tonnage now being built up 
for our mercantile marine after the war will find ready, constant, and profit- 
able employment in the foreign trade. It means that our merchants having to 
do with ships and commerce will be placed in positions that will enable them to 
extend their business throughout the world. 

In the period antedating the war it was' realized only too well by practical 
shipping men how little money was left here by foreign-owned ships which 
then controlled the foreign trade, our own mercantile marine being a negligible 
quantity. These ships came here furnished with supplies taken out of bond in 
Europe, or from the free zones, sufficient for the round trip, and not a few of 
them were even bunkered for the return trip. The only necessaries purchased 
here were fresh meats and vegetables. 

With the free port or free zone established, our ship chandlers, ship smiths, 
ship repairers, and, in fact, all mechanics having to do with ships or their 
cargoes, would be placed in a position to secure a great volume of business 
that is now taken to foreign ports by reason of the inadequacy of our laws. 
This concrete illustration of our present state of helplessness, small as it may 
seem, is only indicative of the principles underlying every phase of marine 
business of American ports. Among instances too numerous to cite in full are 
those of foreign vessels coming here in distress, postponing the making of per- 
manent repairs until such time as they reach the other side. In this way 
millions of dollars are lost annually to the country. 

The free port or free-zone system, including within its scope shipyards, dry 
docks, and repair spots, provided with the necessary duty-free accessories, 
would remedy this condition and give constant and profitable employment 
to our mechanics and other tradesmen. The trade that would be built up 
between the United States and South America would result in inestimable 
benefit to our country. 

Merchants with large amounts of capital tied up in duties awaiting the 
adjustment of drawback claims, never satisfactory and often attended with 
legal formalities, requiring the expenditure of from 30 to 50 per cent of the 
duties originally paid, could utilize this capital in the branching out of business. 

The benefits such as accrued in the ports of Europe, where the free port or 
free zone has been established, would likewise follow here, and our commerce, 
approximating some 20,000,000 gross tons per annum, would soon be doubled. 
******* 



74 EREE ZONES IN PORTS OF THE UNITED STATES. 

The director of the department of wharves, docks, and ferries, under whose 
directions these improvements are being prosecuted, is of the opinion that he is 
clothed with authority under the acts of assembly creating his department to 
acquire property to build, equip, and maintain a free port or free zone should 
Congress enact the necessary enabling legislation. No city in the world pos- 
sesses a better or more capable body of merchants than Philadelphia, and if 
Congress in its wisdom will give to them this added tool for commerce, I 
predict that the whole Nation will be benefited. 

* * * , * * # ^ 

Mr. Morris Rosenbaum ( private banker, Philadelphia, Pa. ) . * * * Hav- 
ing a free port in which docking facilities and warehouses equipped with 
electric cranes for rapid handling of cargoes, both in and out bound, are avail- 
able would enable not only the American merchant to make the port a dis- 
tributing center for products of the Far East, South America, and parts of con- 
tinental Europe but would also attract the merchant to warehouse in the free 
port such of his goods as coffee, rubber, tea, Chile saltpeter, guano, silk, dye- 
woods, cocoa, hemp, hides, sugar, etc., until such time as the market in one of 
the other countries will offer advantages for reexportation. 

The American manufacturer will be in a position to have a vast variety and 
quantity of products from which to purchase quickly with no delay in delivery. 
This means that the capital employed can be turned more frequently, which 
insures steady employment to mechanics and laborers and also quick delivery to 
the oversea trade. 

Cost of construction and land. — Three hundred acres of land at $3,000 per 
acre=$900,000. 

Construction of 5 basins, 1,000 feet wide and 2,000 feet long, with concrete 
quays 300 feet wide, covered with sheds, equipped with electric hoisting device 
at each 100 feet on both sides ; two traveling cranes on the inside and double- 
track railroad in the center. 

One basin, same size as above, similar quay construction, so arranged that 
potash, saltpeter, guano, or cement may be loaded or unloaded into or from 
ships directly into railway cars standing on tracks alongside of the ship. One 
basin, same size as above, with quay which shall be equipped to handle dyewood, 
logwood, and lumber of general character, to and from the vessel into railway 
cars or lighters. 

One basin, same size as above, with quay which shall be equipped to handle 
lubricating oils, naval stores, etc. Depth of basin shall be 35 feet. Belt-line 
railway to connect three railroads with each quay with railroad yard facilities 
to accommodate 2,000 railway cars, all to be handled by electric motive power. 
Administrative building equipped with most modern office and pneumatic trans- 
fer devices so as to reach every part of quays and warehouses. Cost to be 
approximately $20,000,000. 

Charges. — To cover dredging expenses to maintain the basins of the free 
port deep and clear ; all sea ships above 1,000 tonnage shall pay 10 cents per 
net register ton except vessels with cargo of bulk goods, such as coal, cement, 
etc., or vessels arriving in ballast and departing with cargo shall pay only 5 
cents per net register ton, and vessels arriving and departing in ballast shall 
be exempt from tonnage duties. 

Warehousing charges. — General merchandise, 25 cents per month or frac- 
tion of one month and 10 cents for each additional month?— ^Coffee in bags, 10 
cents per bag for one month or fraction thereof and 5 cents for each additional 
month. Dye and log woods, $1 per ton for one month or fraction thereof and 
50 cents per ton for each additional month. Saltpeter and guano in bulk, $1 
per ton for first month or fraction thereof and 25 cents for each additional 
month. 

Port expenses. — Covering tonnage dues, towage in and out, pilotage in and 
out, incidental expenses, should not exceed 25 cents per ton. 

Mr. Hempstead. I would like to ask Mr. Rosenbaum if he has not mis- 
stated the situation regarding the make-up of manifests on arriving vessels, 
assuming that we have a free port? He suggested that the manifest be made 
out, one portion to the manifest for goods intended to be landed in the free zone 
and one portion to be landed at the regular dock. That would be quite impos- 
sible, to my mind. It would compel the merchant to decide before his goods 
were shipped from the other side whether he was going to take advantage of 
the free port. 



FREE ZONES IN PORTS OF THE UNITED STATES. 75 

Commissioner Kent. Would that be much of a hardship? 

Mr. Hempstead. Quite so. I think the merchant should have the right to 
nominate whether he will put the goods in free storage after the arrival of the 
vessel and not before it left the free port. 

Mr. Rosenbaum. For the quick handling of cargoes it would cause no hard- 
ship on any shipper to make out his bill of lading on one form or another, but 
it would facilitate the work of the port authorities in the handling of goods 
properly and quickly. He can so arrange his cargo that when the ship comes 
in he can discharge either at the city pier or at the free port. There would be 
no hardships on that account. 

******* 

Mr. Tuckek. I would like to inquire of Mr. Rosenbaum if he suggests a 
charge to be made against tonnage arriving for the use of the free zone? 

Mr. Rosenbaum. This has nothing to do with the free zone. This is simply an 
expense to the ship. The reason I mention that is this: If a man wishes to 
ship a cargo to the free port of Philadelphia, he should know what those 
charges will be when he charters the ship. 

Mr. Tucker. I thought you were speaking about a charge that might be 
made by the local authorities upon a ship in the shape of a tonnage charge. 
My understanding is that that would be out of keeping with the provisions of 
the Constitution ; that different sections could not make a charge on tonnage. 

Commissioner Kent. The charge and collection of tonnage tax upon vessels, 
as such, is only permitted to be made by the Government. No port may levy or 
collect such a tax. It would be an interference with commerce and imports. 
Ports, however, are permitted to make charges, based upon the tonnage of 
vessels, for the use by such vessels of the port facilities. Excuse me just a 
moment, Mr. Tucker. I think we can fairly assume that the customs port 
authority is one thing, but a free zone in that port is another thing. It is prac- 
tically an extension of the bonded-warehouse idea. If there are any discrimi- 
nations used as between charges up to the free zone, I can see where your con- 
stitutional question might come in, but you must consider the free zone in the 
nature of an extension of the private property of a bonded warehouse. * * * 

Mr. Albrecht. The vessels arriving at the port would not be compelled to go 
to the free zone. They would go there voluntarily. And if they go there to 
accept such facilities as may be offered they are doing it entirely aside from the 
port regulations. It would not be a charge for their entering and using the 
port, but only for special facilities provided, of which they might take advantage 
or might not. 

Commissioner Kent. Mr. Rosenbaum, there is one thought you brought out 
there that seems to have been extremely important in Hamburg and Copen- 
hagen, and that was the greater financial facilities opered in the free port than 
are offered outside. The outside business under our warehouse system is more 
scattered. In Copenhagen they insisted upon having banking arrangements in 
the free zone that were superior to those outside. 

Mr. Rosenbaum. Exactly. Mr. Chairman, I may say that there was a great 
deal of thought given to the future of the American commerce. Our banking 
facilities, unfortunately, were very, very poor, but they have been very much 
improved within the past few years by the establishment of the Federal reserve 
banks. It allowed the American manufacturer to compete with the German 
merchant in South America by selling goods under the same terms. It has 
been found that the Federal reserve bank system would not suffice for the great 
commerce of the United States which is to come, and preparations have been 
made to meet the difficulties. I am glad to say that one of our largest Phila- 
delphia institutions is a member of. it. 

The foreign merchant will find that when a free port is established in Phila- 
delphia he can send his goods over here ; he will get his warehouse certificate ; 
he can secure some money if he needs any ; and he can sell his goods to South 
America or England or Canada. * * * 

Mr. N. T. Folwell (importer, exporter, and manufacturer, Philadelphia, 
Pa.). * * * i would like to indorse the testimony of Mr. Mulford, which 
calls special attention to the inconvenience of the present drawback system. 
That was fully explained to you yesterday, and I concur in that explanation. 

Commissioner Kent. How much do you think that could be improved and at 
the same time protect the revenues of the Government? 

Mr. Folwfll. I do not know how you are going to improve very much, be- 
cause the raw materials are coming in here free. They have to be watched in 
every process and a full detailed account made of the goods that the materials 



76 FREE ZONES IN PORTS OF THE UNITED STATES. 

enter into. Then again, there are some goods that raw materials would be 
blended with. It would give considerable trouble. That is one reason why I 
think that the drawback system has not been utilized like it might have been. 
******* 

While the free port is desirable to manufacture, import, and assemble goods 
to export to the countries south of us, I consider one of the most important 
questions is the laws relating to our merchant marine. This is sort of going a 
little off from your regular line, but I wanted to impress this point upon you, 
because in your recommendations to Congress no doubt what you have to say 
will have a great deal of weight. Prior to entering the war our vessels on the 
Pacific were being transferred to other countries, as the owners claimed that 
they could not run them under our laws at a profit. This is all true, and no 
doubt you are fully aware of it. After the war it will be up to Congress to 
pass laws which will enable owners of the large number of merchant ships now 
being built to operate them at a profit. 

Prior to the War of 1812 the Stars and Stripes flew in every port of the 
world. We see no reason why after this war this should not again be the case. 
******* 

Commissioner Kent. From what you have stated you would consider the free 
zone a device that would aid in reestablishing the merchant marine? 

Mr. Folwell. It would be a decided factor, but it is so coupled with the 
shipping facilities. Of course, our ships would have either to decay or 
be transferred to other countries. I think it is a very important question for 
you to bring up before Congress in your recommendations. Something should be 
done to our navigation laws to permit our own vessels to run here at a profit. 

Commissioner Kent. Do you not think it is important that our own people 
should also go on those vessels as sailors? 

Mr. Folwell. Certainly. I would keep up the wages. That is one reason 
why the manufacturers in Phinladelphia are in favor of high tariff. It allows 
us to pay the extreme wages that are prevailing in this country and still com- 
pete with the world. * * * 

Mr. E. D. Zeller (representing the Growers' and importers' Exchange, Phila- 
delphia, Pa. ) . * * * i n the first place, we are all agreed that the bonded- 
warehouse system has proven an advantage to our country and should be con- 
tinued. I think we can be agreed that the system by which our domestic manu- 
facturers have been fostered in the matter of ability to do some foreign trade as 
developed under the drawback system has been of advantage. I think this 
drawback system by a more flexible arrangement can be made of even greater 
advantage. 

Commissioner Costigan. Have you any suggestion along that line, as to 
amendment of our drawback laws or regulations? 

Mr. Zeller. Amendment to the drawback regulations should be along the 
lines that there shall be less difficulty in the formalities that are to be observed, 
always with a proper regard for the protection of the revenue. 

I speak as a believer in the drawback system for our foreign trade. Many 
of us encounter these difficulties. For instance, I might speak from my own 
business experience with regard to sugar. I have been for some thirty-odd 
years in the sugar-refining business. As you know, sugar is one of the most 
important articles of import in the city of Philadelphia, due to the advantageous 
location of Philadelphia as a sugar-refining city, favorable shipping facilities, 
fresh water, proximity to coal, and available water ; and we have always done a 
very considerable export business. With the very considerable tariff that exists 
on sugar in the export business very large sums were sometimes tied up, often 
running up as high as half a million dollars. Of course, the costs in carrying 
are very considerable with regard to that particular item. 

Commissioner Kent. How long does it take to get that drawback? 

Mr. Zeller. The operation of the present method is for the refiner to work 
in periods of time, sometimes two weeks, sometimes a month, and it involves 
the liquidation of all of the import entries before the refinery abstract involving 
the manufacturing particulars can be liquidated. As you know, the matter 
of appraisal, the matter of weighing, and all the details of importation move 
somewhat slowly through the customs procedure, and it sometimes happens that 

Commissioner Kent. Can you liquidate and get your drawback prior to the 
arrival of the cargo in a foreign port, or do you have to wait for landing 
receipts or returns? 

Mr. Zeller. No ; a bond can be given. If your abstract is liquidated and 
your export entries are liquidated, you can collect your drawback within 30 



FREE ZONES IN PORTS OF THE UNITED STATES. 77 

days after the clearance of the exporting vessel by giving bond for the pro- 
duction of the landing certificate. 

Commissioner Kent. How long does that bond have to run? 

Mr. Zeller. That bond might be for a hundred or a hundred and fifty thou- 
sand dollars. 

Commissioner Kent. How long would it run before that bond is canceled? 

Mr. Zeller. That bond runs for about a year's period, and then you have 
to produce your landing certificate. 

Commissioner Kent. Who furnishes those bonds, the bonding companies? 

Mr. Zeller. The bonding companies will furnish them ; yes, sir. 

Commissioner Kent. Is that customary? 

Mr. Zeller. It is customary in the larger business for the bonding companies 
to provide it. Of course, that entails an expense that seems to be altogether 
unnecessary in a way because the completion of the full facts are carefully 
ascertained. The bill of lading, for instance, is issued for the volume 
exported and it is generally under an inspection by officers. 

Commissioner Kent. Why should it not be conclusive in the case of a tonnage 
of sugar that has gone into export on a ship that has left the port? Why 
should you have to wait for any verification? 

Mr. Zeller. I think that is merely an inherited system. It is conclusive 
as far as the merchandise is concerned. 

Commissioner Kent. It could not put into another American port without 
entering the vessel? 

Mr. Zeller. No. sir. 

Commissioner Kent. Then, do you see any sense at all in waiting for a 
landing certificate from the foreign country before your bond is canceled? 

Mr. Zeller, I do not see that the landing certificate is anything more than 
a formality that has been inherited, and it is one of those things that causes a 
great deal of annoyance at times. 

******* 

Mr. Albrecht. I would like to ask what is the practice of these times with 
respect to cargoes which by reason of the activity of the submarines are sunk 
and not landed at all. Is there any drawback to be obtained under those 
circumstances when certainly no landing certificate is furnished, nor could 
after a short time any evidence be found of the cargoes? 

Commissioner Kent. And would the bond ever be canceled? 

Mr. Zeller. We have had one or two instances of total loss of cargo where 
the facts were submitted, and we had evidence from the English Government 
that such a vessel had disappeared, and, of course, the Secretary of the 
Treasury on these representations has canceled the bond. 

* * * * * * * 

Commissioner Costigan. How much money of the company you represent is 
tied up on the average under the drawback system? 

Mr. Zeller. Well, I made a collection at the close of the year of $493,000. 
I think we were probably 60 days after the clearance of the ship — in some 
cases more than 60 days — an average of from 45 to 60 days in recovering 
drawback. 

The operation is peculiar in that under the sugar system certain ports have 
been delegated as quite competent to liquidate the refining abstracts, for in- 
stance, of the manufacturer and all of the important details, Philadelphia 
not being one of those selected ports for the liquidation of abstract. All of 
those details in the importation are prescribed and sent to the port of New 
York and then in due course in the ordinary movement of rotation they 
are liquidated by the port of New York and then sent back to the port of 
Philadelphia. When that information is received our customs authorities 
then have the facts upon which they can proceed with the liquidation of the 
export entries from the port of Philadelphia. It seems to me a very round- 
about proposition and altogether unnecessary. 

******* 

I think we have to look at it a little more broadly than from a purely 
local standpoint. I have been in the port of Hamburg and I have observed the 
development there. It seems to me that a free port will be of great advantage 
to any city or municipality, if you will, in which it is located. Not only will 
it be of advantage to the mere local surroundings, but it will be an advantage 
to the hinterland to which possibly a great deal of the merchandise flows. 
Those who have been in Hamburg have noticed those square-riggers. They 



78 FREE ZONES IN PORTS OF THE UNITED STATES. 

were in the East and West African trade. They would gather up from the 
different ports along there all sorts of merchandise and replace it for dis- 
tribution in the port of Hamburg. The available service of cheaper lines out 
of Hamburg would distribute that collected merchandise and mean a great 
advantage in its movement. 

Further than that, in Hamburg there are a great many merchants. Now, 
why is that? Is it because the facilities for the handling of merchandise 
have thrown into that location great mercantile houses? I think that is one 
of the things in which we are woefully lacking in this country. The estab- 
lishment of more of an international exchange of commodities is going to 
regenerate the thought of our American minds internationally and possibly 
restore what was, I think, one of the great things we had in olden times, 
large firms dealing in all sorts of commodities from all parts of the world. 

Anyone who has been in Hamburg will see that the English have sent their 
sons out into those houses, the same as they do in South America, and if we 
are going to have a great fleet of merchant ships we must also have American 
merchants who are capable of thinking and trading internationally along 
those lines. A great campaign of education is necessary to encourage us to 
look out over a broader field. 

I think in a great many instances we have chosen to localize our thought 
rather than to internationalize our thought, and to me one of the strong 
advantages of the free port will be the restoration not only of the employment 
of the American mercantile marine power, but the employment of the American 
merchant for international trade. 

Mr. John W. Libeeton (Atlantic Refining Co., petroleum products, Phila- 
delphia, Pa.). * * * I represent the petroleum interests, the Atlantic 
Refining Co., as well as the Martime Exchange. We are not making use of the 
drawback system for the reason that although in years past we have im- 
ported large amounts of tin and collected very large sums in drawbacks, 
as much as nearly a hundred thousand dollars in one month, we are at present 
using the domestic material. But that is likely to change with the tariff 
and trade conditions. 

We are located in that part of the city referred to by Mr. Zeller and Mr. 
Catell, the southwestern section, where possibly our section might be taken 
into a free zone. I doubt very much if it would pay us — we occupy about a 
square mile of land — to move into the free zone. If we should return to 
the importing of foreign tin and collecting drawback I doubt even then under 
those conditions if we would move into the free zone. But if we could 
be taken into it, it would, no doubt, be very beneficial to us. 

Commissioner Kent. Of course, that is a matter of great interest to the 
commission. In other words, your statement would lead one to suppose that 
if you were starting out de novo and did not have fixed investment you would 
probably put part of that in the free zone? 

Mr. Libeeton. Very likely. On the question of the present system of draw- 
backs I feel very strongly on two points, both of which I believe have been 
touched upon by other speakers. One is the matter of the 30-day period before 
the drawback can be collected, and the other is the matter of landing 
certificates. 

The money we have invested in tin when we are buying the imported mate- 
rial represents very large amounts, because we do not bring it in, say, in 
one week and export it in another, as, perhaps, the sugar people do. We 
have the tin lying here for months sometimes, because we are bound to have 
a supply on hand in order to take care of the uncertain arrival of the vessels 
taking the export cargoes and we have to have a supply on hand ahead of 
time, and that duty is locked up during all of that period. It seems to me that 
the 30-day limit could be very well waived by the Government. 

Then there is a matter of being required to file a bond to produce a landing 
certificate. While we have a year in which to do that, sometimes it has been 
necessary to extend it, and it has taken us two years before that bond is 
canceled. 

Commissioner Kent. Does the expense of the bond bear any relation to the 
length of time that the bond is outstanding? 

Mr. Libeeton. We do not employ bonding companies for that purpose. We 
give bond ourselves, and there is not an actual outlay of money so far as the 
bond goes, but it is largely a matter of the trouble and difficulty, the extended 
correspondence in getting those certificates back, and then if there is any 
discrepancy to have to refund the duty. 



FREE ZONES IN PORTS OF THE UNITED STATES. 79 

Commissioner Kent. Your statement brings up an interesting question as to 
how you can avoid difficulties in order to furnish bond. You say that you do 
not have to tie up any money and you do not have to pay any fees for the money. 
A great many people do have to do that. 

Mr. Libekton. That is one reason why it is not fair to the general community, 
and I believe this free zone would be very valuable to the man with limited 
capital who. could start fresh and take advantage of this locality if it was 
purely an export business. For that reason, under the principle of being 
interested in the entire body politic, we would favor and strongly urge the 
bringing of a free zone in Philadelphia. 

******* 

Commissioner Kent. Dr. Wilson, I understand that you are the gentleman 
who is conducting this big Commercial Museum here? 

Dr. William D. Wilson (director Commercial Museum, Philadelphia, Pa.). 
Yes, sir. 

Commissioner Kent. The point has been brought before the commission a 
number of times that there would be a great advantage in a free zone in 
having a continual exhibit for both foreign and domestic goods showing the 
methods of repacking and demonstration packages for trade. Why and wherein 
would a free zone be a better place for such an exhibit than customs territories? 
Is there troube about bonding goods that are on exhibition, samples, etc.? 

Dr. Wilson. We have in Philadelphia, in the last 20 years, accumulated an 
immense amount of illustrative products brought from all countries. 

Commissioner Kent. Have they paid duty? 

Dr. Wilson. They have paid no duty. The Government has been perfectly 
willing to allow these goods, no matter what their value might have been or 
may be, to be put on exhibition, and the Commercial Museum has been prac- 
tically a bonded warehouse in that sense. The Government has permitted 
us many times to remove from the customhouse the exhibits which have been 
sent to us from foreign countries or the exhibits brought here and put on 
exhibition in different expositions. It has permitted those goods to go direct 
to the Commercial Museum and be opened under the inspection there of a 
customs inspector. 

Commissioner Kent. Can a merchant utilize your museum for his samples 
of foreign goods without an interference by the Government people and without 
the payment of duty and without bonding? 

Dr. Wilson. He would have to have special permission and a special record 
would have to be kept in the customhouse. For instance, I have one illus- 
tration of a very valuable exhibition of materials from Brazil which was sent 
to New York and finally permission given by the customhouse to be sent to 
the Commercial Museum. It was on exhibition there for two or three years, 
always under the eye of the customs, and later sent to Hamburg. 

Commissioner Kent. Was it used commercially by the merchants here? Did 
anybody make any money out of that exhibit? Did they use that as a sample 
of what they would furnish people who were shipping with them here in 
Philadelphia? 

Dr. Wilson. This particular collection was not exactly in that line, but the 

spirit of the thing would have been the same. 

Commissioner Kent. As I understand it, then, your museum would not 

accommodate specific packages that some individual merchant wanted to 

display to a prospective customer? 

Dr. Wilson. We have never taken that up in exactly that way. 

Commissioner Kent. I am thinking about a purely business museum. I was 

wondering how far you went into the active end of commerce. 

Dr. Wilson. We have never stimulated that particular method of doing 

business. 

* * * * * * * 

Commissioner Kent. I was, of course, particularly interested in the question 
as to whether there would be a better opportunity to exhibit business samples 
in a free zone than there would be in customs territory, and I was anxious to 
get some information as to the practice and custom in that regard. 

Dr. Wilson. I should think that a free zone which would allow anybody to 
enter, any individual to enter freely and study the situation, would offer — I 
mean under the present restrictions — a much better opportunity for the exhibit 
of all foreign trade materials which might be used and utilized in the manu- 
facturing interest, unless we had abrogated some of the laws which control our 
customs. 



80 FREE ZONES IN" PORTS OF THE UNITED STATES. 

Commissioner Kent. Would not an exhibition of the methods of packing 
adjusted to foreign countries also be of benefit? 

Dr. Wilson. I think that could be done just as well in the Commercial Mu- 
seum. We have taken that up. 

* * * * * * * 

Considered as a place where foreign goods may be stored, mingled, repacked, 
and manipulated for export, all free from customhouse interference, the advan- 
tages of free ports are at once apparent and concrete. It is in this that, 
should the system be installed in the United States, its value would be earliest 
demonstrated. 

* * * * * * * 

Considered from the manufacturing standpoint, as a place where imported 
raw materials may be made up for export, the value of a system of free ports 
or free zones for the United States is more in the future, though perhaps it may 
have equal possibilities. 

The establishment of these free zones would eliminate for the industries 
established in such areas some of the admitted disadvantages and incon- 
veniences of the present system of drawbacks; and, if the facilities were used 
to any great extent, they would likewise tend to reduce the economic waste 
involved in the present system of manufacturing for export goods into which 
foreign raw materials largely enter. 

It is conceivable that such industries as do not require large space or ex- 
tensive equipment, and in which the processes of converting the imported raw 
materials into export products are few and simple, would take advantage of 
and be greatly benefited by the establishment of a system of free ports. 

Commissioner Kent. Do you believe in throwing goods out of the warehouse 
at the end of three years? 

Mr. John L. Vandiver (customhouse broker, Philadelphia). There is no 
necessity for that. If the importer is still interested in the goods and is willing 
to pay the storage on them, there is no reason why any question of that kind 
should be raised. That had nothing to do with the question of bonded manu- 
facturing. 

We have to furnish about seven different evidences of export. Now, that is 
entirely senseless. 

Commissioner Kent. The goods have to be consecutively identified. 

Mr. Vandiver. They do not in many cases. They have been trying to do that 
in the last few years. I can give you many cases where they practically elimi- 
nated a man from obtaining drawbacks because they insisted on unnecessary 
requirements. You can take the candy manufacturers in Philadelphia, for 
whom we collected for many years. They had to quit it, because they simply 
could not follow the advice of a special agent who would come around and say, 
" When you get the five barrels of sugar you will have to put that aside and 
follow it up to know exactly in what particular item that sugar goes." That is 
not necessary, because the firm uses only imported sugar. They can not sub- 
stitute any other kind of sugar, and if they should happen to use this barrel 
or that barrel, it does not matter to the Government, because the rate of duty is 
practically the same. But there are many other cases worse than that. 



Interview Between Hon. William Kent and Capt. V. Lassen, January 3, 

1918. 

free ports. 

Minutes of meeting between Hon. William Kent, Hon. E. P. Costigan, members 
United States Tariff Commission; Capt. V. Lassen, superintendent Scandi- 
navian-American Line, New York City ; and Mr. S. W. Hamilton, chief marine 
division, New York Customhouse. 
Capt. Lassen had stated that the free port or free zone of Copenhagen had 

proven inadequate in area for the business involved. 

Mr. Kent. In order to get the advantage of a free zone you need a large area? 
Capt. Lassen. Yes, sir. 



FREE ZONES IN PORTS OF THE UNITED STATES. 81 

Mr. Kent. What has the free zone done to the customs zone in the matter of 
the use of docks, etc.? Has it taken away a large portion of the business? 

Capt. Lassen. No, sir. Business has gone to the free port because it could 
not be handled in the old port, although they have been extending the old port 
to the south as much as they could. They have not been able to extend it 
sufficiently. Naturally, a whole lot of the business goes into the free port. 

Mr. Kent. Free goods as well as dutiable? Domestic exports as well as 
reexports ? 

Capt. Lassen. It has been an advantage to get there, because they can always 
export from the free port. 

Mr. Kent. Is it a better place for export cargo? 

Capt. Lassen. Yes. They have the facilities there to handle it. 

Mr. Kent. How do the facilities of the customs port compare with the facili- 
ties of the free port? 

Capt. Lassen. In the free port they are modern. They have the facilities to 
handle cargo much better in there than in the old port. They have traveling 
cranes on docks. The cranes take the cargo right from the ship's hold and 
bring it across onto the platforms, where they can wheel it into the warehouse. 

Mr. Kent. There is no delay for sampling, or anything like that? 

Capt. Lassen. Not at all. 

Mr. Kent. How do the charges in the free port and customs port compare? 

Capt. Lassen. I really could not tell you, for the reason that the customs 
port authorities are in Copenhagen, but I think that the charges were about 
the same. The customs port is also owned by private persons. 

Mr. Kent. In the free zone, do the liners have their own space? 

Capt. Lassen. Yes, sir. 

Mr. Kent. Do any of the lines put up their own warehouses? 

Capt. Lassen. All the warehouses are put up by the Free Port Co. The 
only thing that is put up by the steamship company, I think, is the baggage 
warehouse and waiting rooms for passengers and offices to care for the arrival 
and departure of the passenger ships. 

Mr. Kent. Is there any general building for an exhibition of samples, etc.? 

Capt. Lassen. No, sir. 

Mr. Kent. How is that handled? Suppose a man is going to buy goods from 
those stored in the free-port warehouses. How is he going to see what he is 
buying? 

Capt. Lassen. He would go into the warehouse and see it. 

Mr. Kent. Would not a special exhibit building be a good thing? 

Capt. Lassen. I think it would be. 

Mr. Kent. As to the difference in charges between the free port and the cus- 
toms port 

Capt. Lassen. I am not sure of the difference there, but I think there is 
very little difference, because all the port business is handled by the harbor 
board. 

Mr. Kent. You do not know whether this port has been a financial success? 

Capt. Lassen. I think it has in later years. 

Mr. Kent. From what I can learn, there are two or three things in the nature 
of subsidy. The Government guaranteed the interest on bonds, over and 
above expenses, up to the amount of 8,000,000 kroner, subject to restitution from 
earnings. What is the value of kroner? 

Capt. Lassen. One kroner is about 27 cents. At the present rate I think the 
kroner is about 32 cents. 

Mr. Kent. Why do not all ships go into the free zone? Why should any of 
them go to the customs port? 

Capt. Lassen. Mostly bulk cargoes are handled in the customs port, such 
as coal, coke, etc. — cargoes that go direct to merchants who have their own 
warehouses. The old customs port is lined with warehouses along the wharves, 
and the merchant buying a cargo of grain, for Instance, would want that 
delivered at his own warehouse. Farther south in the harbor there is nothing 
but coal and coke handling. The ships going into the customs wharf itself go 
there because there is a bonded store there and a sampling store. But it is 
only small cargoes that go there. All the big cargoes go into the free port, 
because they have the facilities. 

Mr. Kent. What would happen to the existing facilities in New York if a 
big free zone were to be established there? 

140955—19 6 



82 FREE ZONES IN PORTS OF THE UNITED STATES. 

Capt. Lassen. They will remain the same. You could lighter from the 
steamer to the free port. In Copenhagen, if goods are to be exported from the 
free port into the old port (customs port) they go on a lighter, which is sealed, 
and a customs inspector goes along with it to the customs port. 

Mr. Kent. It is sealed and guarded, rather than bonded? 

Capt. Lassen. Yes, sir. 

Mr. Kent. You think that if a large free zone were established in New York 
Harbor there would be business enough for the present facilities in addition to 
the free port? 

Capt. Lassen. I think so, because there is so much passenger business. The 
piers on the river front in New York are occupied with the passenger business, 
and it would not do to transfer the passengers to the free port, because they 
must be convenient to the hotels, etc. The free port must be established in 
such a place as to have easy access to the railroads. Also, there must be land 
behind, so that houses can be built for the employees. 

Mr. Kent. Are you familiar with Hamburg? 

Capt. Lassen. Yes, sir; but that was many years ago. As far as I under- 
stand, Hamburg has been working under the same conditions as Copenhagen — 
too small. They could not extend it. They had no space to develop. 

Mr. Kent. What is your idea about manufacturing in a free zone? 

Capt. Lassen. I think it is a very good idea. You get raw materials in and 
have them manufactured and then export them either to the interior or to 
foreign ports. 

Mr. Kent. But goods manufactured in a free port are handicapped as against 
the interior. On the other hand, your mixing, blending, and cleaning would 
be of assistance. 

Mr. Greer. Did you ask Capt. Lassen about the regulations concerning vessels 
entering the free port ? 

Mr. Kent. What does a vessel have to do on entering the free port at 
Copenhagen ? 

Capt. Lassen. Nothing, except file a copy of the manifest at the customhouse. 

Mr. Kent. But you have the quarantine? 

Capt. Lassen. Yes, sir. 

Mr. Kent. Do you have any regulations regarding seamen ? 

Capt. Lassen. No, sir. 

Mr. Kent. How about the mails? 

Capt. Lassen. They are taken care of in the free port. 

Mr. Kent. So that there is no difference in treatment of the mails or the 
quarantine from what there would be in the customs port? 

Capt. Lassen. No, sir. 

Mr. Kent. No benefit? 

Capt. Lassen. No, sir. 

Mr. Kent. How about unloading? Can you unload more rapidly? Is there 
any law that holds you back from the customs zone? 

What happens to the cargo? 

Capt. Lassen. It always goes to the warehouse. The warehouses are built 
right up to the docks. Of course, some goods that will stand the weather are 
sometimes left on top of the docks. 

Mr. Kent. In New York there are a lot of warehouses back from the water- 
front 

Capt. Lassen. In New York anybody can apply for permission to run a bonded 
warehouse. They are scattered all around. It is very inconvenient, because 
the goods must be trucked. That is why I think a modern free port, with ware- 
houses on the docks, will be of great assistance to us. 

Mr. Greek. Suppose a vessel wanted to unload at night or work on a holiday ; 
can they do that at Copenhagen in the free port? 

Capt. Lassen. Yes, sir ; at any time. 

Mr. Greer.. At New York, under our customs laws, no vessel can unload at 
night without a permit. 

Capt. Lassen. There is a special permit for that. 

Mr. Greek. And before it can unload at all the master must go to the custom- 
house and make an entry of his vessel. 

Capt. Lassen. No, sir ; not necessarily. A preliminary entry is taken out by 
the broker. Then the master can enter his vessel within 24 hours after arrival. 
Outside of that, there is nothing. 

For instance, if I am expecting a steamer, and wish to discharge immediately 
upon arrival, before it is entered I can apply for a permit to discharge that 



FKEE ZONES IN PORTS OF THE UNITED STATES. 83 

night, or load that same night if it is bonded goods. As far as we are concerned, 
we take out a monthly permit for lading bonded goods in New York. 

Odd steamers that come in are different, because pier space must be arranged 
for, etc. With the liners it goes just like clockwork. 

Mr. Kent. Are your ships often delayed by cargo being held on the dock or 
delayed in removal? 

Capt. Lassen. Cargo is often delayed on the dock on account of papers or 
bills of lading or something like that not coming forward. 

Mr. Kent. How about the percentage that is taken out for sampling, inspec- 
tion, etc.; does that delay you much? 

Capt. Lassen. No, sir. We have trouble and delay many times on account 
of the customhouse inspector being unable to get a truck when the storage time 
for the goods is up. According to the rules and regulations, he can hire a truck 
from anybody, outside of the contract trucks, and let the merchant pay the 
regular rates for trucking, loading, etc. But at present they must not do that. 
They must call up some deputy on the telephone at the customhouse, and he 
must decide. It always takes time. We have recently had a case where we 
could not get rid of the goods. The customhouse inspector tried to get the 
trucks over, but he could not get them. He went to his district inspector and 
he had the same trouble. 

Mr. Kent. How do you collect your outgoing cargo in New York — by lighters? 

Capt. Lassen. Some comes by lighters and some by rail. We get some from 
the Hoboken Railway Co. and the rest by lighters. The majority of the incom- 
ing goods go by lighters from the pier. I believe that it would be much better 
if they would use the customhouse inspector as he was used in the past — pay 
him a salary and hold him responsible for the proper inspection of goods. 

Mr. Kent. Would not the free zone tend to get your cargo together much 
better than it is gotten together now? 

Capt. Lassen. I believe it would facilitate matters wonderfully if the free 
port has good railroad connections and good mechanical appliances. 

Mr. Kent. How is the supply of fuel, oil, etc., handled under present condi- 
tions with reference to your line at New York? 

Capt. Lassen. We are coaling by the old-fashioned method. In Copenhagen 
the company has its own elevator that goes alongside the ship and coals from 
there. 

Mr. Kent. Do you coal at your own dock in New York? 

Capt. Lassen. Yes, sir ; but we have to hoist it up in buckets from the barge 
alongside. It works all right, but it is not as fast as it might be. 

Mr. Kent. Do you have Diesel-engined ships? Where do you get your oil? 

Capt. Lassen. The Standard Oil Co. has lighters that come alongside the ship. 

Mr. Kent. Could not the oil be obtained by a pipe line direct to the ship? 

Capt. Lassen. In the free port I do not think you could do that. You must 
remember that there are a great many ships coming there. I do not think it 
would pay to put down a pipe line. The Standard Oil Co. is so well equipped 
with lighters that it would not make much difference. 

Mr. Kent. In Copenhagen does a great deal of shipping anchor in the stream, 
or does it go to the dock? 

Capt. Lassen. It all goes to the dock, except those loaded with explosives or 
more than 18 barrels of kerosene, which must discharge at a certain place. 

Mr. Kent. At Hamburg there is a great deal of anchorage in the stream on 
account of lack of space? 

Capt. Lassen. Yes. All the big Hamburg liners are tied up to buoys, and 
their cargoes' taken off by lighters, and distributed up the rivers or elsewhere 
by lighters. 

Mr. Kent. In Copenhagen the warehouses are all built by the company? 

Capt. Lassen. Yes, sir. 

Mr. Kent. And the equipment is all furnished by the company? 

Capt. Lassen. Yes, sir. 

Mr. Kent. Outside of the office buildings, etc., your shipping company does 
not own anything? 

Capt. Lassen. No, sir. 

Mr. Kent. Does your company lease a certain portion of the piers, etc., or do 
they take a chance on getting a berth? 

Capt. Lassen. Our line has exclusive berths for the ships. 

Mr. Kent. You pay a regular rental? 

Capt. Lassen. Yes, sir. So much per ton. 



84 FEEE ZONES IN" PORTS OF THE UNITED STATES. 

Mr. Kent. Suppose you did not send any ships to the free port and therefore 
had no tonnage, would you have to pay anything? 

Capt. Lassen. Undoubtedly, we would have to pay something; but I am not 
familiar with the arrangement in that case. 

(Mr. S. W. Hamilton, of the New York customhouse, came in to the meeting. 
Then followed reading by Mr. Kent, of skeleton report on free zones.) 

Mr. Kent. What happens to the cargo of a disabled ship coming into New 
York Harbor? 

Mr. Hamilton. We give a permit to land and remove cargo. There is no 
trouble about it. The cargo remains under customs supervision while it is 
stored on the lighters or on the piers. 

(During general discussion of possible locations Capt. Lassen stated that any 
areas where piers are built at the present time should never be taken over. ) 

Capt. Lassen. After five years this area in Copenhagen proved to be just half 
large enough. 

Mr. Kent. It did not kill off the existing facilities. They built a new cus- 
toms district besides trying to extend the free zone? 

Capt. Lassen. Yes, sir ; to the south. 

Mr. Kent. It is stated that a great advantage was found in the use of banking 
facilities in the case of the free port over the customs port ; that is, in the 
standardization and issuance of and trading in warehouse certificates. The 
banks would lend money on the certificates? 

Capt. Lassen. Oh, yes ; they do that. 

Mr. Kent. What is the difference between the free port and the customs port 
in that connection? 

Capt. Lassen. In the customs port they are mainly private warehouses. But 
any person can go into the free port and get its facilities and handle his trade 
through the banks. 

Mr. Kent. If a free zone were established at New York, what would be your 
procedure if you were bringing in a ship with both passengers and dutiable and 
free cargo? Would you go infe© the free port or into the customs port? 

Capt. Lassen. That would depend on the desires of the importers of the 
cargo, whether or not they desired it delivered at the free port. 

Mr. Kent. How do you think they would want it handled? 

Capt. Lassen. I believe that if we had the free port, with good facilities, 
such as rail connections, warehouses, etc., that they would want it to go to the 
free port. 

Mr. Kent. Would the vessel or the lighter go in? 

Capt. Lassen. I think the vessel would go to the regular dock and send the 
lighter to the free zone. 

Mr. Kent. You do not think that the vessel would land the passengers at the 
regular dock and then go to the free zone? 

Capt. Lassen. I do not think so, because it is expensive to transfer the ship 
from the dock to the zone. While we are discharging the ship we are coaling 
her and putting on sea stores, and doing anything that could be done while the 
vessel was being transferred. 

Mr. Kent.- Do any passengers go into the free zone at Copenhagen? 

Capt. Lassen. Yes ; all our passengers are landed in the free zone there. 
Those going across to Sweden have their baggage assembled and go right out 
from there. 

Mr. Kent. How about passengers and baggage going into Denmark? 

Capt. Lassen. That is examined there and the duty paid there. 

Mr. Hamilton. At the free port? They have customs inspectors at the free 
port? 

Capt. Lassen. Yes, sir. 

Mr. Kent. Mr. Hamilton, if a free port were established at New York, would 
it be your opinion that the passengers and their baggage should be prevented 
from landing there? 

Mr. Hamilton. If you could concentrate all the passengers and their baggage 
at a certain point, it would simplify matters a great deal. The great problem 
now is to move a force of men from one point to another. 

Capt. Lassen. I think that it would be an awful handicap if the passengers 
and their baggage were handled at any distance from the great railway ter- 
minals and the hotels. 

Mr. Hamilton. Passengers and their baggage are disposed of before the 
freight is touched. 



FREE ZONES IN PORTS OF THE UNITED STATES. 85 

Capt. Lassen. Besides that, the vessels carrying mainly passengers do not 
carry much general cargo. What they do carry is mainly express stuff. I do 
not think that the harbor as it is would be affected by the establishment of a 
free port. 

Mr. Kent. Suppose you had a cargo that was 90 per cent free goods and 10 
per cent dutiable goods. Would you run that ship into a regular port or the 
free zone? 

Capt. Lassen. That would depend on what the importer said. The goods 
might be consigned to either place. We would land them at the place to which 
they were consigned. 
Mr. Hamilton. The passenger steamers will always go to their present docks. 
Capt. Lassen. Of course. 

Mr. Kent. They permit retail stores in the free port at Copenhagen.? 
Capt. Lassen. They are confined to ship stores and restaurants. 
Mr. Kent. That is subsidizing ships' stores at the expense of the revenue. 
They do not have that in Hamburg, do they? 
Capt. Lassen. No, sir. 

Mr. Kent. Captain, is there any shipbuilding in connection with the free port 
at Copenhagen? 

Capt. Lassen. No, sir. 

Mr. Hamilton. Are shipments made from the customs port to the free port? 
Capt. Lassen. Oh, yes ; you can export to the free port. 

Mr. Kent. Do they have the drawback system at Copenhagen on exports 
from the customs port? 

Capt. Lassen. I do not know about that. 

Mr. Hamilton. If merchandise were withdrawn from an existing bonded 
warehouse and shipped to the free zone, would that constitute a shipment if it 
did not go into a vessel? 

Mr. Kent. It ought to. That is the theory. When it is taken into the free 
zone, it is the same as though it were taken out of the United States. 

Air. Greer. It would be the same thing as a landing certificate in a foreign 
country. 

Mr. Hamilton. And the customs officer at the entrance of the free zone 
would receipt for it and certify to the shipment? 

Mr. Kent. It is then in the free zone. It is none of your business after that. 
Mr. Hamilton. Suppose a shipment is removed from the bonded warehouse 
almost at the end of the three-year storage period and sent into the free zone, 
and there allowed to remain a longer period. Then suppose that it were shipped 
to Boston, or even returned into New York. How about the duties? On what 
valuation would they be based? At the time of original importation to the 
country or of the second importation? 

Mr. Kent. That is a matter for the rules and regulations. That does not 
necessarily affect the original idea. 

Captain, how do you find the charges in New York for lighterage, towage, 
etc., as compared with Copenhagen? 

Capt. Lassen. I believe New York is a little higher. But I assume that the 
charges at Copenhagen have been changed during the last five years, so I really 
do not know. 

Mr. Hamilton. Are the facilities at Copenhagen better than they are on some 
of the modern piers at New York? 
Capt. Lassen. Yes, sir. 

Mr. Kent. Do you think the creation of basins and plenty of ships' berths 
better than any anchorage and lighterage system? 
Capt. Lassen. I think so ; yes. 

Mr. Hamilton. If a lighter came from the free zone into the customs port, 
it would not be permitted to discharge unless it did so under the supervision 
of a customs inspetcor? 

Capt. Lassen. That is so. In Copenhagen the lighter is generally followed 
by a customs officer. 
Mr. Kent. That is a matter that can be covered by the free-zone regulations. 
Mr. Costigan. Mr. Hamilton, you raised one interesting point — possible loss 
of revenue through transshipment and possible change in date of " original " 
importation. Does anything else occur to you as objectionable in the free- 
port system? Anything that may have occurred to you in the course of the 
discussion? 

Mr. Hamilton. I can see that it has advantages in some respects, but whether 
or not it would be practicable in New York I could not now venture an opinion. 



86 FREE ZONES IN PORTS OF THE UNITED STATES. 

Capt. Lassen. There is no doubt that there will always be a little trouble. 
But I think that will be eliminated. 

Mr. Hamilton. There are immense possibilities in it to handle foreign trade. 

Mr. Kent. That is the basic idea. 

Capt. Lassen. There is one thing that we must make up our minds to, if we 
want to do business with foreigners, and that is that we must give our cus- 
tomers what they want. 

Mr. Kent. Suppose we want to make a packed package for shipment to 
South America. We must pay all the duty on that before we can make it up? 

Mr. Hamilton. Yes, sir. 

Mr. Kent. If that is true, then we must charge the South American mer- 
chant what the Hamburg merchant must pay, plus our duty? 

Mr. Hamilton. Yes, sir. I do not know of any provision now that would 
allow you to do that without paying the duty. 

Mr. Kent. Having to pay the duty on the separate articles in the packed 
package cuts us off from that trade. 

Mr. Costigan. You can provide for that by law in the present bonded-ware- 
house system. 

Mr. Hamilton. Yes; but you have remarkable possibilities for fraud in the 
scattering of the warehouses. 

Mr. Costigan. Who meets the policing expense at Copenhagen? 

Capt. Lassen. Customs inspectors are watching the entrance as far as cus- 
toms are concerned. Besides that, the city has a regular police station in the 
free port. 

Mr. Kent. It is part of. the municipality as far as the policing is concerned. 

Capt. Lassen. The guarding of the warehouses, docks, etc., is done by the 
free-port corporation at Copenhagen. 

Mr. Kent. The free-port corporation does not have to pay for the policing. 
In Hamburg it is a charge against the business. There are just three things 
that Denmark does for the fre port : One is the policing, another is the granting 
of the privilege to buy ships' stores free of duty inside the port, and the 
third is the guaranty of interest on the bonds up to the extent of 8,000,000 
kroner. 

Mr. Costigan. Do the railroads run into the free zone? 

Capt. Lassen. They run right up to it. The State owns the railroads. 

Mr. Costigan. You wold require an enlargement of the customs administra- 
tive forces? 

Mr. Kent. The chances are that you would very greatly enlarge the customs. 
The policing charges should be paid out of the charges of the port. 

(Adjournment.) 



Extracts from Letter of George R. Meyercord, President of Meyercord Co. 
(Inc.), Chicago, 111., of May 2, 1918, to Hon. William Kent, Member 
U. S. Tariff Commission. 

I have been carrying on rather an animated correspondence trying to bring 
home that side that I first brought up with you, namely, the development of 
foreign trade to enable American manufacturers to purchase part of their 
article of commerce abroad and continue to make part of the article in this 
market and use the zone for the assembling for export market. 

I firmly believe that many American manufacturers, such as the cash-register 
people, who just before the war erected a plant at Birmingham, and other 
manufacturers would continue to remain, in part at least, American manufac- 
turers in their export shipments. This is the one phase of the bill that appeals 
to me most. I believe that if sufficient arguments and concrete examples were 
advanced along that line of thought, greater support for the measure could be 
secured. 

I think I cited the sewing-machine incident to you. I will now point out that 
that was originally, at the time the patents were alive, an American industry 
and only transferred to the foreign field on the expiration of the patents ; but 
I do believe that those factories could have been kept in America, at least to 
the extent of making the heavy castings and woodwork here, the finer parts 
having been imported and assembled in this neutral zone. 

I believe that is also true with regard to articles like cream separators. It 
is only four or five years ago that the Sharpless people at West Chester, if I 
remember correctly, opened up a factory at Hamburg. 



FKEE ZONES IN POETS OF THE UNITED STATES. 87 

It is only a matter of time when the vast export business of American type- 
writing companies will be transferred to the European branches of these com- 
panies, unless something of this character is done. 

Broadly speaking, my idea is that small parts requiring expensive labor ap- 
plication in the article could be made in Europe, and the heavy and broader 
work done here, and instead of the American industry losing the entire article, 
part of the article would continue as American manufacture, and the profit 
accruing on the small parts — which would be assembled in this zone and placed 
in the machine — would also naturally remain as American capital. 

This is the one phase of this situation that I believe will appeal to the 
Members of Congress, provided it is advanced strongly enough. That's a phase 
of the question that would be particularly interesting to such a vast gathering 
of business men and manufacturers as would attend such a conference as the 
one I attended at Cincinnati, the National Foreign Trade Council. 

If I can be of any further assistance, command me. 



Letter of Chas. D. Boyles to Hon. William Kent. 

New York City, June Ik, 1918. 
Hon. William Kent, 

United States Tariff Commission, 

Washington, D. C. 

Dear Sir : Referring to our conversation regarding the writer's opinion and 
experience in the past with the free ports of Europe : 

The writer was a member of the Albert Dickinson Co., of Chicago, wholesale 
seed dealers, for 35 years. This company's business extended all over the 
world and we did a free business in other parts of the world on goods not in- 
tended for the American markets, in addition to the goods which we brought 
to the United States. We had to meet the competition of the European, Asiatic, 
and African merchants and consequently were compelled to study and find the 
most economical methods of transportation, storage, and distribution. The 
free ports of Europe we found in many instances much cheaper for the carry- 
ing of these stocks of goods ; there was less red tape and less expense. We were 
able to move the goods in and out of the free ports quicker than we could 
those ports that were controlled by customs duties and regulations. 

We found that the warehouse companies in the free ports made financial ar- 
rangements so that we were able to secure advances on our goods while lying 
in their warehouses on very reasonable terms. In many instances, the German 
steamship lines made specially low rates of freight to the free ports in order 
to secure our business and take it away from the English, Dutch, and Belgian 
shipping ports. All these reasons caused us to accumulate stocks in the free 
ports, where we held them, waiting to sell them in whatever part of the world 
that we could get the best price. Our dealings were exclusively in agricul- 
tural products and we made it a practice to purchase the surplus stocks in 
various markets of the world when the prices were below the cost of produc- 
tion, ship them to these free ports, where we could store them and finance them 
cheaply and hold them until the failure of that particular crop in some part of 
the world caused a decided advance in the market. We then sold them to the 
best advantage in whatever part of the world we found the highest prices 
existing. 

Some of these lines of goods are grown in parts of the world where it would 
not be practical to accumulate and carry the stocks in the proposed free ports 
of the United States. But others could be handled in the same way if the same 
facilities existed in the United States, and there are many other lines of goods 
besides our line which could be accumulated in the American free ports to just 
as good an advantage as in the European free ports, if these ports and facilities 
existed. 

The United States is to-day taking her rightful position in the world, and the 
merchants, with the assistance of the Government, should establish all machinery 
of every nature that is necessary for the United States merchants to be able 
to compete with the merchants of the entire world for the trade of the world 
at the close of the war. Competition is going to be very sharp after the close 
of the war in many lines, and the merchants of the United States need every 
possible facility, including free ports and a merchant marine controlled along 
lines which will permit them to meet the world's competition. These two facili- 



88 FREE ZONES IN PORTS OF THE UNITED STATES. 

ties, I believe, are just as essential to the future success of the United States 
in the world's markets as the financial relations and facilities which are 
already being established. 

I trust that this will give you the information which you desired, based on 
the actual experience of our own business in the past. 
With kindest regards, I am, 
Yours, truly, 

Chas. D. Boyles. 



Address of H. R. Geddes, of Dover, England. 

At a meeting of the Dover (England) Chamber of Commerce on February 14, 
1918, Mr. H. R. Geddes, managing director of the Continental Daily Parcels 
Express and Northern Traffic (Ltd.), outlined his proposals for the creation of 
free ports in connection with after-the-war trade. He said, in part: 

What a free port means is a certain area with spacious warehouse accommo- 
dation where no bonding is necessary, movement is free, and there is no cus- 
toms supervision; Consequently much traffic, especially transshipment traffic, 
is carried to these ports or free areas, which become centers for overseas trade 
on a large scale. Certain cities in North Europe found their transshipment 
trade more important than their direct exports and imports for the country, 
or part of the country, of which they were the recognized port of entry. For 
example, Hamburg, at the time the German Empire was formed, did a huge 
transshipment business with the Baltic. Her overseas lines carried homeward 
bound more freight for non-German Baltic ports than for the interior of Ger- 
many. Hamburg, therefore, refused to join the German customs union. Her 
far-seeing traders did not want customs officials levying duties upon all goods 
she imported or forcing the maintenance of an expensive system of bonded 
warehouses to escape customs levies. It may at once be granted that Hamburg 
merchants could have paid the duties and later collected drawbacks when the 
dutiable goods were reexported, but there is an immense amount of red tape 
connected with the collecting of drawbacks, and there is the added disadvan- 
tage of the tying up of large sums of capital which could be more profitably 
utilized in trade. For example, it was necessary to prove the foreign origin 
of all raw material contained in the reexported or transshipped product, which, 
in the case of goods partly manufactured within the free area, or blended prod- 
ucts of mixed home and foreign origin, would have been a matter of no small 
difficulty. For these and similar reasons Hamburg remained outside of the Zoll- 
verein, or German customs union. Unhindered by customs officials, ships went 
there and departed ; Hamburg stored mixed manufactured goods for export or 
tansshipment without any hindrance, and remained like a foreign island or a 
free State on German soil. Not until goods were forwarded inland did Ham- 
burg know that a German customs tariff existed. In 1882 Hamburg at last 
consented to enter the customs union, but on one condition only, namely, that 
the Empire should contribute 40,000,000 marks toward the construction of a 
free port — i. e., this free port or harbor was surrounded by a customs wall and 
remained like foreign soil. The city proper entered the customs union. Within 
the harbor limits of the free ports are docks, quays, warehouses, export and 
manufacturing and blending industries. The Elbe River pilot who takes the 
vessel into port is sworn in as a customs official and sees that nothing is un- 
loaded on the way up the river. Once the vessel enters the free port it is free 
from supervision. Cargo can be discharged or loaded at any time, without 
any charge, as at present, for customs overtime before and after certain hours. 
Cargo can be stored, blended, manufactured, exported, and handled without 
any inteference or restriction. The free port is outside Germany. That is 
the system which I would like to see introduced here, and many British ports, 
from their geographical situation, offer themselves as better European dis- 
tributing centers than Hamburg or any other great German ports. 

I have succeeded in obtaining a parliamentary return specifying ports of the 
Continent which are free ports and giving information respecting them. This 
report unfortunately is rather old, being dated August 11, 1904, and I am sorry 
to have no more up-to-date information which, had I been able to obtain, would, 
I feel confident, have strengthened my case materially. At the date in question 
the German Empire had nine duty-free areas, varying in size from the free port 
of Hamburg, with an extent of about 2,500 acres, to the free district of Danzig, 
with an extent of less than an acre. Austria-Hungary had two, Denmark and 



FREE ZONES IN PORTS OF THE UNITED STATES. 89 

Rouinania had one each. In nearly all cases the free port is geographically a 
part of a larger port area, although for statistical purposes the free port is 
usually treated as a distinct locality. The free ports in the German Empire 
are Hamburg, Bremerhaven, Cuxhaven, and Geestemunde. There are also the 
free districts of Bremen, Emden, Stettin, Brake, and Danzig. The free ports 
of Austria-Hungary are Trieste and Fiume. The Danish free port is Copen- 
hagen, while Roumania's is Sulina. In the port of Hamburg the entries and 
clearances in 1893 were, respectively, about 5,500,000 tons each, and rose, by 
1902, to entries and clearances of close on 8,000,000 tons. Bremerhaven in- 
creased in the same period from 800,000 tons to about 1,250,000' tons. Cux- 
haven rose from well under 10,000 tons in 1893 to nearly 300,000 tons in 1902. 
This heavy increase, however, is to be attributed to the fact of the port being 
used by some of the larger German navigation firms. Bremen rose from 
350,000 to nearly 900,000 tons. Emden in 1893 had about 14,000 tons of ship- 
ping enter and clear, and showed a steady increase to the end of 1900, when 
the total was over 80,000. Then the free district was established and the 1902 
returns showed a tonnage of 210,000 entered and 202,000 cleared. Danzig, 
where the free area is less than 1 acre and is a portion of a larger port area, 
would afford a good parallel to Dover. In 1902 the entries were 428,000 tons 
and clearance 511,000 tons. The free district is used mainly for the storage 
and shipping of goods produced in Germany, subject to excise or consumption* 
duty. It is also used for the transit trade in Russian sugar and other similar 
goods. The ports of Trieste and Fiume show remarkable increases of 50 per 
cent in 10 years in the tonnage entered or cleared at the ports. The port of 
Copenhagen has also increased its tonnage by 50 per cent. The trade at the 
free port of Copenhagen is very largely transshipment for the Baltic countries 
and transit trade to and from overseas. Of the nontransit trade very large 
quantities of coffee are sorted in the free port. The port of Sulina, in Rou- 
mania, is rather extensive, being a length of 3 miles of the Sulina branch of 
the Danube. Here again a very large trade is done. 

I have learned during my travels abroad that Sweden proposes to establish 
free areas or free ports at Gothenburg and at or near Stockholm. In 1916 
there was much talk at Petrograd of the establishment of a free port at the 
Novy Port, but I am, of course, uncertain as to how recent developments may 
have affected the scheme. Further, and this is interesting, Switzerland has 
also considered the establishment of a free area at Basle. Switzerland is ex- 
ceedingly well situated for transit trade, being near the industrial districts of 
France, Italy, Austria-Hungary, and the German Empire, although, of course, 
in no circumstances can Switzerland create a port on anything like the lines of 
Hamburg, but a free area would be a considerable advantage, especially with 
the excellent transit arrangements Switzerland possesses for transcontinental 
trade. 

After the war the Central Powers will use all endeavors possible to recapture 
their lost ocean and export trade, and their free ports will at once commence 
operations, hoping by means of low rates, subsidized steamers, Government 
bounties, and preferential home railway tariffs to make a fierce fight in view 
of ultimately obtaining success. Without organized effort here and combined 
action by the principal steamship and railway companies the competition would 
be unequal, but, given properly equipped free ports in this country, regular 
steamship services, and enlightened railway administration, the fight will be 
on more equal terms. Trade buyers and sellers, commission agents, and others 
would be in a position to establish themselves here and at other ports. Mer- 
chandise could be sent direct to importers and received direct from exporters. 
Extra charges would be obviated and transportation would be considerably 
facilitated. In the case of large importers and exporters, the merchandise 
could remain in the port and small or large orders could be filled from that port 
instead of the whole of the merchandise being conveyed to an inland port and 
dispatched thence. In the same way, goods for export, once a regular market 
is insured, could also be stored at the ports and shipped as ordered. The geo* 
graphical situation of any port which it is proposed should contain a free area 
would require careful consideration. It must be, if possible, within a port 
which is already oiae of the main arteries of international transport, and it 
must be easily approached, with a good railway service, close to the seaboard, 
or, better still, abutting on the seaboard. There must be room without its con- 
fines for the erection of the houses for the workers who would be necessary for 
the handling work. There must be ample space for future extensions and de- 



90 FREE ZONES IN PORTS OF THE UNITED STATES. 

velopments, and in America a main point was made that the opportunity should 
be seized to build for occupation by the families who would be employed there 
homes which would invite occupation by being designed with a view to comfort 
and labor saving and providing real home comforts of every description, it 
being recognized that happy homes and a contented staff would solve most labor 
problems. It may be interesting to you to know that the houses which were 
projected were in every case to be fitted with electric light, central heating, 
and ample bathroom accommodations, with electric radiators in every room 
and constant supply of hot water in every part of the house. The American 
home is full of these devices, and many of them might be copied here to. 
advantage. 

To resume, there must be adequate railway connections, with extensive plat- 
form and yard space, plenty of room for making up the trains, and plenty of 
roofed-in loading space, the latest handling machinery, hoists, cranes, elevators, 
and escalators, and other devices which would all make for rapid clearance ; 
turntables, water tanks, and even revolving sheds — in fact, a regular railway 
terminus on the largest scale, with engine sheds and repair shops complete to 
the last bolt. The car-reserve sidings should be capable of holding a very large 
number of wagons to meet any emergency, and there must be plenty of cross- 
over roads to enable trains to be made up quickly, as nothing hinders efficient 
dispatch as much as cramped siding accommodations. Where much business 
is expected, docks both wet and dry are a necessity. For special transship- 
ment trade special docks and the use of the third side as a feeder. The double 
rails with turntables at the corners would eliminate much shunting. As re- 
gards quay space, the more that can be provided the better. A good wide quay, 
double lines of rails, cranes fitted to the warehouses and long enough to plumb 
the hold of the ship, with adequate chutes and motor transporters, would make 
loading and unloading a simple matter. There should be ample room for ships 
to warp out or to go right ahead without unnecessary turning or towing, which 
would save much expense. Of course, the more the depth of water to be ob- 
tained alongside the piers or within the docks the better, provided, of course, 
that the quay or docks are protected from the sea swell. If there is plenty of 
depth and surface space, the biggest ships are then able to come in and berth 
under their own steam and with the least possible delay. As I have already 
mentioned, the harbor equipment must be of the .best. 

Labor should be in sufficient quantity and quality, and should be well re- 
munerated. Port charges should be strictly moderate and inclusive, except, of 
course, as regards extra work, such as repacking, casing, etc. Further, ware- 
house rent on goods stored would be additional, but I would suggest that free 
storage for a certain period should be allowed. The port charges should be 
based on a tonnage rate on goods imported, exported, or transshipped, and this 
charge would include all the necessary and usual operations, in a w T ord, an 
inclusive rate, so that it would be known at once what goods passing through 
this particular port would have to pay. 

The next point is that respecting bunkering and oil fuel. A special feature 
should be made of this, and contracts could be entered into by the port author- 
ity or by the merchants established at the port for regular and reasonable sup- 
plies of fuel and lubricants. The knowledge that this facility exists would be 
a further inducement for steamship companies to use the port works for marine 
engineering, and well-equipped repair shops would be a further inducement. 
The knowledge that ships could be dry-docked, cleaned, and refitted would be 
the best possible advertisement and should induce trade as a matter of course. 
There should be provision for future extensions. Buildings should be available 
for what would practically amount to manufacturing in bond, although no bond 
would be necessary. It would be possible to import raw material or partly 
manufactured goods and then to export the manufactured article free of all 
customs or other restrictions. Duties would only be payable on the merchan- 
dise actually imported into the country, and this manufacturing department 
ought to be a considerable source of revenue. There should be well-equipped 
customs examination floors, suitable for all kinds of merchandise. Finally — 
and this is a question of some consequence — the question of free ports should 
be treated as a matter of national importance, and all Government departments 
concerned — and there would be a good many — should give this movement their 
support and endeavor to minimize as far as possible the formalities and regu- 
lations which, unfortunately, appear necessary to any Government supervision. 
It is a matter to consider whether, in the event of a company or syndicate having 



FREE ZONES IN PORTS OF THE UNITED STATES. 91 

the courage to tackle these proposals, it would not be fair for the legislature 
to give some financial support, until such time as the port or ports develop suffi- 
cient trade to be self-supporting. The various railways and steamship com- 
panies operating from the ports might possibly be induced to help in financing, 
although they would very probably argue that their support would be given by 
helping in the equipment and by providing tonnage and by paying their dues. 
Under capable management, provided the arrangements can be made, provided 
the large railway and steamship companies cooperate, provided the Government 
gives actual support, free ports on those lines should command success, although 
not immediately. 

Acts of Congress Granting- Privileges Similar to Free Zone Practice. 

Free-zone procedure has been practically recognized in connection with in- 
ternational expositions, the most recent example being that of the Panama- 
Pacific International Exposition held at San Francisco in 1915. The act au- 
thorizing the exposition, which was approved September 18, 1913, contained the 
following : 

AN ACT Providing for the free importation of articles intended for foreign buildings 
and exhibits at the Panama-Pacific International Exposition and for the protection of 
foreign exhibitors. 

Be it enacted by the Senate and House of Representatives of the Umted States of 
America in Congress assembled, That all articles that shall be imported from foreign 
countries for the purpose of exhibition, and articles and material imported solely for 
use in constructing, installing, and maintaining foreign buildings and exhibits at the 
Panama-Pacfic International Exposition upon which there shall be a tariff or customs 
duty shall be admitted free of the payment of duty, customs fees, or charges, under such 
regulations as the Secretary of the Treasury shall prescribe ; but it shall be lawful at 
any time during the exposition to sell for delivery, at the discretion of the exposition 
company, any goods or property imported for and actually on exhibition in the exposi- 
tion buildings or grounds, subject to such regulations for the security of the revenue and 
for the collection of import duties as the Secretary of the Treasury may prescribe : Pro- 
vided, That all such articles when sold or withdrawn for consumption or use in the 
United States shall be subject to the duty, if any, imposed upon such articles by the 
revenue laws in force at the date of withdrawal ; and on such articles as shall have suf- 
fered diminution or deterioration from incidental handling and necessary exposure the 
duty, if paid, shall be assessed according to the appraised value at the* time of with- 
drawal for consumption or use, and the penalties prescribed by law shall be enforced 
against any person guilty of illegal sale, use, or withdrawal. 

An act approved August 22, 1912, is of special interest in this connection. 
Its purport is clear, and its brevity permits printing without explanation, as 
follows : 

AN ACT To provide for the entry under bond of exhibits of arts, sciences, and in- 
dustries. (Chap. 334, 37 Stat. L., Public, No. 289.) 

Be it enacted by the Senate and House of Representatives of the United States of 
America in- Congress assembled, That all articles which shall be imported from foreign 
countries for the sole purpose of exhibition at expositions of the arts, sciences, and in- 
dustries and products of the soil, mine, and sea, to be held in expositions to be held 
by the Merchants' and Manufacturers' Exchange of New York, in the buildings in the 
city of New York owned or controlled by the Merchants' and Manufacturers' Exchange, 
a corporation organized under the laws of the State of New York, upon which there 
shall be a tariff or customs duty, shall be admitted free of the payment of such duty, 
customs, fees, or charges, under such regulations as the Secretary of the Treasury 
shall prescribe ; but it shall be lawful at any time during the exposition to sell, for 
delivery at the close thereof, any goods or property imported for and actually on exhibi- 
tion in the exposition buildings, subject to such regulations for the security of the 
revenue and for the collection of import duties as the Secretary of the Treasury may 
prescribe : Provided, That all such articles, when sold or withdrawn for consumption 
or use in the United States, shall be subject to the duty, if any, imposed upon such 
articles by the revenue laws in force at the date of withdrawal; and on articles which 
shall have suffered diminution or deterioration from incidental handling and necessary 
exposure the duty, if paid, shall be assessed according to the appraised value at the 
time of withdrawal for consumption or use ; and the penalties prescribed by law shall 
he enforced against any person guilty of any illegal sale, or withdrawal: Provided 
further, That nothing in this section contained shall be construed as an invitation, 
express or implied, from the Government of the United States to any foreign Govern- 
ment, State, municipality, corporation, partnership, or individual to import any such 
articles for the purpose of exhibition at the said exposition. 

Approved August 22, 1912. 

These two enactments have never been attacked on constitutional grounds. 
In connection with these acts, rules and regulations were laid down that 
have protected the revenue by bonding and by continuing customs inspection 
and control. The pertinence of the citations in connection with the free zone 
is found in the fact that special legislation has been granted to provide for 
•customs immunity in special locations. 



92 FREE ZONES IN PORTS OF THE UNITED STATES. 

Copenhagen Free Port — Law of March 31, 1918. 

Article 1. Under the direction of the Copenhagen port commission a free 
port for commercial and industrial purposes will be constructed on the western 
side of the interior roadstead (bay) of Copenhagen immediately north of 
Kastel Point, with its corresponding lands, which in regard to customs and 
production taxes will be considered as foreign territory. 

The free port will have two basins. The one to the south will have a width 
at its base of 780 feet. The dike, by means of which this basin will be sepa- 
rated from the interior bay, will be of 3,000 feet, and, in so far as possible, will 
be constructed in a straight line with a continuous width of 250 feet. 

The territory of the free port will be limited to the west by the railroad 
mentioned in article 2, and will be situated in such a way that the branch 
west of the northern port will be on land belonging to the Copenhagen port 
commission. The free port will be connected with the customhouse by means 
of an inclosed wall which will pass through the citadel Frederickshavn. 

Lands adjacent to the. free port can be included in the free port, and still 
continue to be private property, in accordance with a special agreement with 
the company mentioned in article 3 and subject to ratification by the legis- 
lative power. 

Art. 2. The secretary of the interior is authorized to construct a railroad 
from the free port to the Copenhagen customhouse, passing through the Vogn- 
man market until it reaches the Nordsjoelland railroad, and a classification 
station alongside of the free port. 

All these improvements will be considered from every point of view as form- 
ing a part of the system of State railways. 

The secretary of the interior is equally authorized to conclude all the arrange- 
ments necessary to obtain for the State railways the areas necessary for the 
future construction of a railroad over the existing dike at the extreme west- 
ern end of the free port. 

Art. 3. In order that the installation of the port and the railroads mentioned 
in articles 1 and 2 may be-carried out it is necessary that a company with a 
bonded capital of 4,000,000 kroner be formed within four months after the pro- 
mulgation of the law to take over the construction and equipment of the port. 
By equipment is understood the warehouses, cranes, railroad, etc. It will also 
defray the expenses of the upkeep of the construction work by the port 
authorities in the free port. This construction work (referred to in art. 1) 
will be determined in detail by the secretary of the interior. In exchange 
for these obligations the company will take over the exploitation of the free 
port for 80 years, but the State may terminate the concession at any time 
after 25 years have expired. The company will collect the wharfage duties of 
the free port during the period of the concession. (See art. 9.) 

The secretary of the interior, who is authorized to award the concession 
mentioned for the period indicated, shall stipulate in the concession that no 
other concessions will be awarded for the installation and exploitation of a 
free port within the limits of the port of Copenhagen during the period of 
exploitation. 
• In the concessions it shall be stipulated: 

(a) That the company must have its principal seat of business in Copen- 
hagen. 

(&) That all the directors must be Danish subjects. 

(c) That the company must furnish security, by means of a deposit or in 
any other satisfactory way, that the sum of 4,000,000 kroner (allowing a de- 
duction for the expenses caused by the formation of the company, as well as 
the loss of the interest during the time elapsed since the formation of the 
company until the whole port is open for exploitation, as will be later on 
determined by the secretary of the interior) is at any and all times available 
to carry out the buildings and constructions that may be indicated in detail 
by the secretary, of the interior in accordance with this law. 

(d) That of the net yearly income one-half is to go to the port commission 
and the remainder to the company until it receives a yearly interest of 4 
per cent of the capital invested in the construction. Any resulting surplus 
will be divided in the proportion of 4 to 1 between the port commission and 
the company until the port commission also receives for the same year an 
interest of 4 per cent on its total capital invested in the improvements made 
by it, the value of the latter to be fixed by the secretary of the interior. Should 
there still be a surplus, it will be divided in equal parts between the port com- 
mission and the company. 



FKEE ZONES IN PORTS OF THE UNITED STATES. 93 

The concession, will also stipulate the amounts to be set aside for the amor- 
tization and reserve fund to be created by the company. 

After 25 years of exploitation the State will have the right at any time to 
demand of the company all the property and the accumulated reserve fund 
and appropriate the same for transfer to the port commission. In this event 
the State or the port commission (besides taking over the bonded debt of the 
company, contracted with the consent of the secretary of the interior) will 
pay to the bondholders the value of the bonds as quoted on the Copenhagen 
Stock Exchange during the last 10 years. The average of each year will be 
obtained by taking one-half of the total sum of the maximum and minimum 
averages of the quotations for each month. Bondholders will at no time be 
required to give up their bonds at less than par nor can they demand a quota- 
tion in excess of 125 kroner for every 100 kroner. 

The company must furnish an annual documentary accounting of its ex- 
penditures to the Rigsdag for its approval. Three years after the opening 
of the free port to exploitation the secretary of the interior may, with the 
consent of the legislative powers, relieve the company from the obligation to 
invest all the capital stock above indicated. In the same way he can grant 
permission to the company (with the consent of the legislative powers) to 
increase its capital over 4,000,000 kroner, either by increasing the latter or 
by issuing a bonded loan. 

The treasury will guarantee the interest on and the amortization of the 
bonds which the port commission will issue for the purpose of obtaining funds 
for the construction of the free port, including the construction of the custom- 
house, by setting aside for this purpose a fixed and unalterable annual con- 
tribution. The amortization will extend over a period not to exceed 60 years. 
However, this guaranty shall not exceed 8,000,000 kroner. The sums which 
the State treasury will have to advance in accordance with this guaranty 
must be reimbursed by the port commission as soon as possible. (This obliga- 
tion of the port commission can not be, however, an obstacle for the collection 
of passage dues on vessels through the port of Knippel, dues which were fixed 
by royal decree of Oct. 30, 1816.) 

Art. 4. The lands and property necessary for the installations will be ex- 
appropriated in accordance with the provisions established by decree of March 
5. 1845, for the exappropriation of lands for railroads. However, under this . 
agreement no compensation will become due to the city of Copenhagen for* 
exappropriation of its lands or for damages. 

Art. 5. For the installation of railroad communications, etc. (mentioned 
in art. 2), the Federal treasury may use a sum up to 905,000 kroner in addi- 
tion to the expenses for exappropriation. 

Art. 6. The lands used for the free port as well as the railroad construction 
above mentioned will be free, while used for this purpose, of all taxes and 
other dues which may have formerly been imposed thereon. The warehouses 
and installations constructed on this land and pertaining to the company, as 
well as the buildings for public administrative or exportation offices, will 
also be free of all taxes generally imposed on buildings and of the land tax 
which is collected by the city of Copenhagen. (This exemption does not in- 
clude, however, the water tax.) The same privilege will be extended in the 
territory indicated to the buildings belonging to the railroad. The port com- 
mission is authorized to issue the bonds indicated in article 3 on unstamped 
paper, be they personal or payable to bearer ; and the transfer of the per- 
sonal bonds, or of those which may have been converted later on into such, 
may take place without the use of stamps. Contracts made with reference to 
the installations mentioned do not require any stamps, and the bonds issued 
by the company can also be extended or transferred under similar conditions. 
Materials which shall be employed in the construction of the railroad will be 
admitted free of customs duty. 

Art. 7. The lands of the free port necessary for the installation of 

will be reserved and at the proper time turned over for this purpose on pay- 
ment of the expenses which the port commission may have incurred in their 
purchase ; or, in case they have become to be the property of the port commis- 
sion by filling in, they will be obtained by paying the sums which the formation 
of these lands and their protection against the water may have cost in addi- 
tion to the interest corresponding to the period elapsed between the conclusion 
of the improvements and the delivery of the lands. 

Art. 8. The secretary of the interior is authorized : 

First, to leave without effect the law of March 31, 1864, by which a port 
duty was imposed on outgoing vessels. 



94 FREE ZONES IN PORTS OF THE UNITED STATES. 

Second, to exempt overseas vessels from the port duty established by said 
law for incoming vessels on cargo transshipped in the port and sent abroad by 
vessel, observing the regulations which may be issued in this respect by the 
secretary of the interior. 

The above facilities shall go into force at the time the free port will be 
opened to traffic by the company mentioned in article 3. At the same time the 
duties for incoming vessels will be reduced (see No. 2 above) to 30 ore per 
registered ton of cargo unloaded. If the vessels was completely loaded, and 
unloaded its entire cargo, it will pay this duty according to measured capacity. 
If the vessel was not completely loaded or does not unload its entire cargo, 
it will pay the duty of the quantity unloaded converted into registered tons 
according to the rates of the customhouse ; the duty must always be paid, 
however, in • such a way that it will never be higher than that which would 
correspond to the measured capacity of the vessel. 

The secretary of the interior may decide that instead of the port duty 
above indicated of 30 ore per registered ton an equivalent duty may be paid 
on the articles unloaded, which in such case would have to be fixed for every 
class of articles in accordance with the tariff schedule of the customhouse. 
The reduction of the port duties can only take place by process of law ; but 
this is no obstacle to the privileges and exemptions of duties which may 
already have been granted under the authority given to the secretary of 
the interior by the law of March 31, 1864, and which continues in force. 

No port duties will be collected in a free port ; in their place there will be 
paid wherever articles go from the free port into Danish customs territory the 
same duty as collected in the port of Copenhagen. This duty, based upon 
the rates applied to the article under the customs tariff act, must be equal 
to the port duty. The calculation will be based on units of one-tenth of a 
registered ton. If the tariff on any one article is inferior to one-tenth of a 
registered ton, it will nevertheless pay for the latter amount. 

The tax on vessels under the law of July 4, 1863, Chapter V, will cease at 
the same time that the free port is entirely open for exploitation. 

Akt. 9. The wharfage tax will be collected in the free port in accordance with 
the rules which may from time to time be put into force for the public wharves 
of the port of Copenhagen. 

Akt. 10. The budget fixed annually for the free port of Copenhagen, as well 
>as all annual events, will be communicated to the Rigsdag. 

The port commission, created by law of September 30, 1858, will be increased 
by four members, each section of the Rigsdag to elect two. These members will 
hold office for three years. 

As long as the guaranty of the State mentioned in article 3 for the loan 
contracted by the port commission remains in force, the port council can not, 
without the consent of the legislative powers, make any further expenses than 
those necessary for the exploitation, conservation, and necessary improvement 
of the port. It can not, moreover, decide by itself on new extensions or works 
to be undertaken. 

Art. 11. Merchandise received for deposit in the warehouses of the free port 
belonging to the company mentioned in article 3 can be sold, mortgaged, insured 
against fire, etc., without any further requirement than the delivery or exhibi- 
tion of samples of the merchandise, according to warrants or certificates of 
deposit. More definite regulations will be fixed by law in regard to these cer- 
tificates. The secretary of the interior will decree all the necessary rules and 
tariffs for the administration of the free port. 

Art. 12. The products obtained in the territory of the free port must, on 
entry into the territory of the Danish customhouse, submit to the regulations 
which may at any time be established under the ordinary tariff acts. No fac- 
tories for artificial fertilizer, margerine, bookbinder shops, or printing establish- 
ments can be established in the territory of the free port without the consent 
of the legislative body. 



Charter of the Copenhagen Free Port Joint Stock Co. 

The secretary of the interior, etc. : 

In accordance with the authority granted me by the law of March 31, 1891, 
I approve herewith the charter of the Copenhagen Free Port Joint Stock Co., 
organized on the 25th day of April of the same year with a capital of 4,000,000 
kroner for the purpose of carrying into effect the management of the free 



FREE ZONES IN PORTS OF THE UNITED STATES. 95 

port mentioned in said law during a period of 80 years (the territory of the 
free port will be treated as lying outside the customs territory of Denmark). 
This charter will go into effect as soon as said free port has been constructed 
by the Copenhagen harbor board and equipped by the company with the installa- 
tions for its operation. All of these acts to be subject to the following con- 
ditions : 

Article 1. The free port will be constructed by the Copenhagen harbor board 
according to plans approved by the secretary of the interior and based on the 
stipulations of law No. 44, dated March 31, 1891 (art. 2). These plans have 
been submitted to the company, but the harbor board reserves the right to make 
such modifications as, by agreement with the company, may be found necessary 
as the work progresses. 

Art. 2. The work to be undertaken by the harbor board is as follows : 

Construction of a breakwater and of the new basins in the free port to the 
depth and with the installations agreed upon. 

To prepare the lands redeemed from the sea by the harbor board that are to 
be included in the free port. 

Acquisition and preparation of additional land for the free port, including the 
construction of a mole to separate the southern basin of the free port from the 
interior bay. This mole, which is to be 250 to 270 feet in width, to be partly 
in the customs territory and partly in the free port. 

The construction of the wharves from the quay of this mole toward the 
interior bay also forms part of this work. 

Construction of a canal for flat-bottomed boats between the southern basin of 
the free port and the interior bay ; a fence to separate the territory of the free 
port from that of the customhouse ; customs guardhouses ; streets, sewers, and 
drains and drainage canals for the street. The city of Copenhagen is to be con- 
sulted in regard to these various constructions whenever it may be necessary 
to do so. 

The arrangement of all streets in the free port. 

The fencing in of the road of communication provided by the aforementioned 
law between the free port and the Copenhagen customhouse, the roadbed to be 
macadamized ; another road is to be constructed at the Government's expense 
and under the direction of the secretary of the interior, the land on both sides 
of the road to be prepared, as well as all adjoining roads, to such an extent as 
may be necessary for the main road proper. 

The inclosure of the territory of the free port toward the part called Langlinie 
and widening and installing therein a harbor for pleasure crafts. 

Art. 3. In order to separate the territory of the free port from that of the 
customhouse, there shall be constructed on the mole that separates the southern 
basin from the interior bay two iron fences 6 feet apart to permit the passage 
of the guards. Of these two iron fences or railings, the inside and higher one 
will be placed on the line dividing the free port from the customhouse district. 
On the mole mentioned above, instead of a passageway for the guards, an ele- 
vated road 30 feet wide, inclosed, and from 6 to 7 feet above the level of the 
mole, will be built ; beneath there will be constructed two passages between the 
free port and the customhouse district alongside of the wall of the quay and 
facing the interior bay. This passageway will be made a regular road in all its 
width. 

Streets and sewers will be constructed according to plans which will be fur- 
nished by the secretary of the interior. 

Art. 4. The expenses necessary for the aforementioned work will be defrayed 
by the harbor board from port funds supplemented by a contribution from the 
State for the customhouse fence and by a contribution by the free port com- 
pany — established by act of November 30, 1891, and Which will be approximately 
80,000 kroner — for the construction of the passageway indicated in article 3. 
This elevated promenade over the mole will permit the company to construct 
below the same storehouses, of which they will have the exclusive use. 

Art. 5. The improvements to be made by the free port company (the southern 
part of which will be preferably given over to commercial purposes, while the 
northern part will be especially devoted to industrial purposes and the deposit 
of large and bulky merchandise) are: 

Construction of roads for the distribution, transportation, and deposit of 
merchandise in the territory of the free port and of its junctions with the 
railroads which, in accordance with article 2 of the above-mentioned law, and 
under direction of the secretary of the interior and at the expense of the Gov- 



96 FREE ZONES IN PORTS OF THE UNITED STATES. 

ernment, will lead from the free port to the customhouse of Copenhagen and 
to the railroad of Nordjoeland, passing through the market of Vogman, and 
for a distributing station alongside of the free port. 

Consolidation of the land on the aforementioned railroads up to a distance 
of 2 feet on each side of the cut. 

Construction of water mains, etc., with all the branches pertaining thereto, 
excepting the sewers and canals of the streets mentioned in article 2. 

Construction of warehouses and storerooms, such as those mentioned in 
article 4, as well as the buildings for the cutomhouse, administration, etc. 

Intallation of drains and other machinery necessary for the service of the 
free port as well as the installation of a power plant. 

Installation of electric-lighting system. 

Providing closed launches. 

Art. 6. The improvements for the equipment of the free port will be under- 
taken by the company in the manner, extension, and time which may be indi- 
cated by the secretary of the interior. However, the secretary can not demand 
that the storerooms beneath the elevated road of the eastern mole should cover 
an extension of more than 800 feet. In order to meet the expenses which these 
improvements may involve, the company may, if necessary, employ all its capi- 
tal stock (4,000,000 kroner), less a reduction of 3 per cent (amounting to 120,000 
kroner), which has been adjudged by the company to the Danish Mortgage and 
Exchange Bank as a commission for the formation of the company, and the 
amount of interest lost by the company during the time elapsed since its forma- 
tion until the free port is open for use and the exact amount of which will be 
determined by the secretary of the interior. 

The bond prescribed by the above-mentioned law (art. 3, No. 3), which pro- 
vides that all the capital stock with the exception of the above-mentioned reduc- 
tions should be at all times available for the construction of the buildings and 
equipment mentioned and as provided for by the secretary of the interior, 
has been furnished by the company and certified to by "the above-mentioned 
bank in a letter written to the secretary of the interior under date of April 11 
of last year. 

Art. 7. The secretary of the interior will submit annually to the Rigsdag, for 
its approval, a detailed statement of the amount which the company may have 
used of its capital stock. 

Three years after the opening and use of the free port the secretary of the 
interior may, in accordance with article 3, second last paragraph, of the law 
above mentioned, and with the approval of the legislative power, relieve the 
company from the obligation of using its entire capital stock. 

Art. 8. All the designs and plans for buildings and equipment to be con- 
structed by the company must be inspected and approved by the secretary of 
the interior, but such inspection can not be made by the Copenhagen harbor 
board. 

Art. 9. Concerning the joint accounts between the State railway and the free 
port company in regard to the construction of the junctions connecting the 
railway in the free port with those of the State, and with the State railway 
leading to the Copenhagen customhouse, and eventually with those railways 
which the State may construct over steam floats in the free port (see art. 28), 
these shall be prepared by special arrangement approved by the secretary of the 
interior. 

The State reserves the right to construct and use a direct route to pass 
through the territory of the free port, beginning at the distribution station near 
the quay wall of the dock until it reaches the wall communicating between the 
free port and the customhouse. 

Art. 10. As soon as the" improvements to be made by the port authorities 
are sufficiently advanced so that construction on the buildings mentioned in 
article 5 may be begun, the harbor board will authorize the company to start 
work thereon. The same action will be taken for the construction of buildings 
to be erected by private parties for industrial use. The company should employ 
the greatest activity possible on its construction, so that it will in no way 
interfere with or delay the buildings to be erected by the harbor board. 

Art. 11. The secretary of the interior will determine the date on which the 
free port will be open for use and communicate the same to the company for 
their compliance therewith, and will at the same time enforce the provisions 
of article 8 of law No. 44, dated March 31, 1891. 



FREE ZONES IN PORTS OF THE UNITED STATES. 97 

Aet. 12. The free port company will have its principal place of business in 
Copenhagen. The secretary of the interior is authorized to name one or two of 
the directors of this company, who may number three or more, respectively. 
All the directors must be natives and Danish citizens. 

The provisional statutes of the company in force during the period of con- 
struction, as well as the final ones, and the modifications which may be intro- 
duced therein, will not be valid unless ratified by the secretary of the interior. 

Art. 13. In accordance with the resolution of the secretary of the interior 
(examine, however, article 34 hereinafter stated) the company has the right 
to exploit the free port during 80 years from the date of its opening; the com- 
pany, however, is under obligation to carry on this exploitation in such manner 
as to attain the purposes of a free port. The secretary of the interior will 
approve all contracts of lease which may be made between the company and pri- 
vate parties, as well as all tariffs (including the rates for electric lighting and 
motor power which the company may furnish to private parties within the 
free port) and the rules and regulations governing the management of the free 
port. These tariffs and regulations can not be suspended without the consent 
of the secretary, except in very urgent cases, when approval must be obtained 
as soon as possible thereafter. The company must permit merchandise depos- 
ited in open or inclosed spaces within the free port leased out to private parties, 
and which it was impossible to receive in the warehouses of the company, to 
be prepared or manipulated in any way that the proprietors or their representa- 
tives see fit. The company shall, at the request of the interested party, receive 
goods on deposit and issue therefor certificates of deposit and warrants, which 
may be transferred without the necessity of a stamp and under such conditions 
as will be more definitely provided for by law. Every person has a right, 
upon payment of stipulated sums and by observing the regulations in force, 
to make use of the installations in the free port. The company will submit to 
such regulations of the secretary of the interior as he may make for the pur- 
pose of obtaining statistical information in regard to the traffic of the free 
port. 

The appointment and distribution of the officials and laborers necessary 
for the management of the port will be made by the directors of the company, 
who will also make all regulations in regard to the service. 

Art. 14. The secretary of the interior will determine the amount to be paid 
for the use of the rolling stock of the State railways over those of the free 
port. 

Akt. 15. The buildings and installations indicated in articles 5 and 6 will be 
kept in good condition by the company during the period of the concession ; 
they also must be kept insured for their total value. 

All installations, etc., indicated in articles 2 and 3 (streets and buildings 
for recreation, unless managed by the city of Copenhagen), will be kept in good 
condition by the harbor board against reimbursement by the company of the 
corresponding expenses as approved by the secretary of the interior. How- 
ever, the expenses for the upkeep of the quay walls of the eastern mole as well 
as those for the upkeep of the breakwater will be borne by the harbor board. 
The city of Copenhagen, in accordance with the agreement made with the 
harbor board, takes charge of the repairs of the sewers and drains mentioned 
in article 2. The company shall not obstruct the execution of such repairs. 

Art. 16. The directors of the company will furnish each year, for the approval 
of the secretary of the interior, a statement of the revenues and expenditures. 
The amendments which the secretary may make in such statement must be 
observed by the company which can not, without the consent of the secretary, 
incur any expenses that do not appear in the approved budget, nor exceed the 
expenses indicated therein. 

The revenues will consist principally of: 

(a) Rents paid by public institutions for sites or buildings. 

(&) Rents derived from the leasing of inclosed or open storage places, 
offices for samples and other, etc. 

(c) Fees for the use of cranes and other apparatus of the free port. 

(d) Fees for transportation and manipulation of cargoes. 

(e) Rents of sites for industrial establishments. 

(f) Revenues from the use of electric light. 

(g) Revenues from the use of motor power. 
(h) Revenues from the use of the quay. 

140955—19 7 



98 FREE ZONES IN" PORTS OF THE UNITED STATES. 

(i) Revenues from the interest on the capital employed by the company. 
(j) Other revenues. 

The expenses of administration will consist principally of : 
(a) Salaries and other emoluments to directors, officials, and workmen 
of the company. 

(&) Office expenses. 

(c) Expenses for management, repairs, and insurance of the buildings, 
warehouses, and other equipment of the company. 

(d) Reimbursement to the harbor board for repair expenses on the con- 
structions made by it in the free port. ( See art. 15. ) 

(e) Tax for the use of the wharf. 

(f) Taxes for the management, if there be any. 

{g) Reimbursement to the harbor board of the additional expenses incurred 
for police surveillance. 

(h) Other expenses and charges that may arise. 

Akt. 17. The directors of the company shall promulgate regulations for 
accounting. The annual return, which must, be made within four months after 
the close of the fiscal year, shall be reviewed by two auditors of which one 
shall be chosen by the secretary of the interior and one by the bondholders of 
the company. These auditors will be paid a yearly fee out of the funds of the 
management, the secretary of the interior to fix the amount to be paid to the 
auditor chosen by him. After review by the auditors the secretary of the 
interior will render a decision, after which the bondholders will be paid their 
dividends. The auditors shall have the right to examine the books, inspect the 
cash, and call for information in regard to the management at any time. 

Art. 18. The secretary of the interior may also call on the company for any 
information in regard to the management of the free port. 

Any party which may consider itself prejudiced by any action of the company 
may file a complaint with the secretary, who, after hearing both parties, will 
render a decision. 

Art. 19. Merchandise which leaves the free port and enters into the Danish 
customs territory must submit to the rules as well as to the tariff schedule 
then in force. In accordance with article 4, law No. 44, of March 31, 1891, 
there can not be installed within the territory of the free port and without 
the previous consent of the legislative power factories for the manufacture 
of artificial manures, or margarine, nor bookbinding, or printing industries 
for books, newspapers, or music. The consent of the secretary of the interior 
is necessary for the establishment of any other industry, as well as for retail 
stores, within the territory of the free port. The secretary shall not, however, 
oppose any difficulties whenever the articles manufactured or sold are for 
export or for provisioning vessels. 

The use of the free port is subject to State control in order to protect the 
interests of the customhouse. Special care will be taken to prevent the con- 
sumption of dutiable articles within the free port, unless such duties have been 
paid. 

Art. 20. The rents to be paid by Government institutions to the company 
for quarters within the territory of the free port will be determined by' the 
secretary of the interior. 

Art. 21. The police of the port of Copenhagen will have authority over the 
free port (the free port forming part of the port of Copenhagen) whenever 
necessary, and in the exercise of this authority will pay special attention to 
the requirements to the free-port company. 

Art. 22. The bonds issued by the company may be extended or transferred 
without the usual stamps, and the contracts which the company may enter 
into for construction work are also exempt from the use of such stamps. 

Art. 23. All warehouses and equipment belonging to the company, the build- 
ings for the offices and management of the company, and for the offices of the 
Government within the territory of the free port will be exempt from all 
federal and local area taxes (land taxes) ; however, the water tax is not 
included in this exemption. 

Art. 24. In accordance with law No. 44 of March 31, 1891 (art. 8), no port 
fees will be collected within the free port ; articles leaving the free port for 
entry into the Danish customs district pay to the harbor board a tax which will 
be equal to the tariff rate placed upon the article by the regular customs tariff 
act, and equivalent to the port tax. This tax will be calculated upon the basis 
of one-tenth of a registered ton ; even if the rate upon any one article does not 



FREE ZONES IN" PORTS OF THE UNITED STATES. 99 

reach the amount usually paid for one- tenth of a registered ton, payment will 
be made on this basis. 

Aet. 25. The wharfage dues in the free port will be the same as those paid 
at all public wharves in Copenhagen. They will be collected by the company 
under the control of the harbor board and deposited in the treasury of the 
company. 

The wharfage dues paid by vessels anchoring near the customhouse territory 
on the east side of the eastern mole in the southern basin will not be paid to 
the company. The secretary of the interior will establish rules for the division 
between the company and the harbor board of the wharfage dues paid by 
vessels which during their stay in the port of Copenhagen may have used 
either the wharves of the free port or any other public wharves within the port 
of Copenhagen. 

Aet. 26. Vessels to which an anchoring place may have been assigned in the 
customhouse district on the eastern flank, in front of the storehouses con- 
structed by the company or in front of the passageways beneath the elevated 
road, will be obliged, unless they are discharging articles for the construction 
of the free port or loading similar articles, to vacate their places in favor of 
those vessels which come to load or unload articles for or from the construction 
of the free port. 

No cargo can be placed on that part of the dock situated between the wharf 
wall and storerooms or passages of the company that would obstruct the traffic 
of the moving cranes constructed by the free-port company. It is also pro- 
hibited to place such articles on the wharf in such a manner as to impede the 
traffic alongside of the wall. 

No articles to be loaded or unloaded can stay on the wharf longer than 
sunset of the day following that on which they were placed there for loading 
or were unloaded, unless there be no room for them in the warehouses of the 
company. 

Art. 27. The free-port company is not required to contribute in any way to 
the expenses occasioned for custom surveillance within the free port, whether 
such surveillance be by land or by sea. The Government will maintain, without 
any expense to the port company, an office for the liquidation of customs duties 
in the customhouse building located within the territory of the free port ; this 
building, however, will be constructed by the port company. Should either the 
company or any private party demand any special surveillance of their inter- 
ests, such service will be paid by the interested party according to the general 
rule covering such cases. 

Aet. 28. The lands situated to the north and the south within the limits 
of the free zone and which in the port project have been set aside for steam 
winches may in the meanwhile be utilized by the company ; they must, however, 
be available at any time to be used as originally intended and must be returned 
in the same condition in which the company received them. 

Aet. 29. The yearly net proceeds of the free port will be apportioned as 
follows : 

First, 5 per cent of the surplus will be set aside in such securities as the 
secretary of the interior may determine to constitute the reserve and improve- 
ment fund ; that is to say, to cover extraordinary expenses and for the renewal 
of equipment or major repairs which may become necessary, etc., and which, 
in accordance with article 15 of this charter, should be made at the expense of 
the company. This fund may only be used during the period of the charter 
and with the approval of the secretary. 

Second, of the remaining surplus the port company and the harbor board 
will each receive one-half until the share of the port company represents 4 
per cent on the capital invested in construction work during the year for which 
the account refers to. Any remaining surplus will be divided in the propor- 
tion of 4 : 1 between the harbor board and the company until the harbor board, 
in the same manner and for the same year, has received 4 per cent on its 
capital invested on constructions within the free port. Should there still be 
a surplus it will be divided in equal shares between the harbor board and the 
company. 

The amount of the capital to be invested by the harbor board will be deter- 
mined by the secretary of the interior under the following conditions : 

1. The account will include : 

(a) The value of the lands redeemed by the harbor board and "which enter 
the free port ready for use — 4,100,000 kroner. 



100 FREE ZONES IN PORTS OF THE UNITED STATES. 

(&) The value of the wooden quays (Bolvoerker) in the northern port, and 
which will be included in the free port — 2,350 feet, at 140 kroner per foot* 
329,000 kroner. 

(c) All the expenses which the harbor board has had or will have, under the 
provisions of article 4, and which are not related to the aforementioned lands* 
(a) wooden quays, (&) adding thereto the loss on account of interest. From 
this total there will be deducted, however, the expenses incurred by the harbor 
board in the construction of the east end of the eastern dike in the southern 
basin, which is to be used as a wharf for vessels larger than those which here- 
tofore have been able to use the same; in other words, all expenses that are 
necessary to deepen the front of the mole in order to increase the height of the 
wooden quay under water and also for the construction of a macadamized 
roadbed on said mole. 

(d) The loss in the quotation of the bonds issued by the harbor board for 
the construction of the free port and the commission paid for the issuance 
of said bonds. 

2. Of the total amount of these respective sums there will eventually be 
made a reduction of the values of the lands (by taxation) which have been set 
aside for the construction of the steam winches. This reduction will take place 
on the day the land will be turned over for the purpose mentioned. 

Art. 30. The payment of the surplus to the port authorities (in accordance 
with art. 29) will be made at the time dividends are paid to bondholders. 

Art. 31. The secretary of the interior can permit the port company to in- 
crease their capital over 4,000,000 kroner, by issuing more bonds or by raising 
a loan, only with the consent of the legislative powers. 

Aet. 32. If circumstances make it desirable, there may be included within 
the free port land belonging to the harbor board situated to the north of the 
free port and including the walls of the old wharves ; and the use of this land 
will then be confined, by special arrangement, to the free port company. In 
order to obtain the incorporation of this land the free port company must 
before the expiration of 10 years since the opening of the free port file a 1 
written request and prove that at least three-fifths of the lands in the northern 
part of the free port as indicated in article 28 have been made productive. 
The port authorities may, after obtaining this land, lease the same for a max- 
imum period of 10 years. The lessee will at all times be bound by this period , 
in case the land is incorporated in the free port the right is reserved to the 
free port company to evict the lessee at the time of the incorporation, although 
the lease may not have expired. The eviction will, however, be compensated 
by an indemnity paid by the company and agreed upon by experts. 

By special arrangement between the free port company and the respective 
proprietors, and subject to the legislative approval, lands adjacent to the free 
port may be included therein. They will continue to be private property, 
however. 

Art. 33. During the life of this charter no others can be granted for the 
establishment and management of a free port within the port of Copenhagen. 

Art. 34. Twenty-five years after the opening of the free port the State will 
be authorized to demand at any time from the free port company the transfer 
of all its property as well as of the reserve fund, or that the same should be 
transferred to the harbor board. If this should happen, the State or harbor 
board will assume responsibility for the bonded loan issued by the company 
with the approval of the secretary of the interior, and will furthermore pay 
to the bondholders the value of their bonds according to the average quotations 
which they may have had on the Copenhagen Stock Exchange during the last 
10 years. The average for each year will be arrived at by taking one-twelfth 
of the total of the average highest and lowest quotation for each month. How- 
ever, no bondholder will be required to have his bonds redeemed at less than 
par; on the other hand, they can not demand reimbursement at a higher 
premium than 125 per cent. 

Art. 35. If the company should violate in any way any of the obligations 
herein mentioned, the secretary of the interior may have the charter annulled 
by judicial sentence, and in such case the company will be obliged to vacate 
the territory of the free port within a period fixed by the secretary of the 
interior and remove its buildings or other improvements or turn them over to 
the Government for the value of the material as appraised by experts. 

Art. 36. With the exception noted in preceding article No. 35 the secretary of 
the interior reserves the right to decide on every question subject to interpreta- 



FREE ZONES IN PORTS OF THE UNITED STATES. 101 

tion, so that such questions can only be taken before the courts by agreement 
with the secretary. 

Art. 37. This charter can not be transferred to any other party without the 
-consent of the secretary of the interior. 
- Department of the interior, April 27, 1892. 

Ingerslev. 



Rules for the Administration of the Free Port of Copenhagen. 

1. There is reserved to the anonymous free port company the execution of all 
works in connection with transportation, packing, etc., of the merchandise 
which may be deposited in the free port outside of the lands and buildings 
which have been leased. The company may therefore prohibit other parties 
to carry on work of this nature without its consent. It is not necessary, how- 
ever, to obtain the permission of the company to carry on transportation by 
hand or on ordinary carts — merchandise to be loaded or unloaded merchandise 
not included — over the territory of the free port. Nor is this permission neces- 
sary for the crews of the vessels anchored within the free port in order to 
carry out such work as may be assigned to them. 

2. For all work carried out by order of the company as well as for depositing 
packages in the warehouses or in open spaces belonging to the company, the 
interested parties will pay the fees according to the tariff promulgated by the 
secretary, which will also contain the rates referring to rents either for a fixed 
period or for an indefinite period and which will be subject to abrogation by 
giving a notice in advance for the period of days indicated therein. These 
general rates are only applicable to the open or closed depositories within the 
free port, while in regard to other leases and especially in regard to leases of 
lands for factory purposes special arrangements will be made in each case 
with the company and submitted for the approval of the secretary. 

3. F*or each lot of merchandise which may be the object of the manipulation 
before mentioned (including transportation), the interested parties must 
present to the company — besides other necessary documents, such as manifests, 
etc. — in the first place, a statement which will contain a declaration as to the 
class of merchandise, its rate or measurement, marks, number of pieces and 
destination, and in the second place, the order specifying the nature of the 
work to which the merchandise is to be submitted, and in case of insurance 
the statement should state the sum and the nature of the risk. (See art. 7.) 
These two documents will be signed by the party giving the order or by the 
person which the interested party may have indicated to the company as being 
authorized to sign for him. Blank forms for this class of documents will be 
sold in the offices of the company. 

4. When the company, after investigation, has found no reason to refuse 
execution of the order and has received the documents above mentioned and 
for which it will issue receipt on request, it will be obliged to execute the 
order as soon as possible. 

5. For the transportation by railroad — transportation which will be carried 
out by the company — the same rules will apply as govern merchandise carried 
on State railways, excluding, however, the regulations referring to rates and 
taxes and including such modifications as circumstances may demand. 

For any other transportation which the company may carry out, the rules 
and regulations now in force in regard to land and maritime transportation 
will be applied. For the storage of merchandise by the company the rules 
and regulations hereafter stated in paragraphs 15 to 25 will be applicable. 

6. The company will always insure the merchandise whenever requested to 
do so and whenever it is possible against fire or other damage (par. 3) with 
the insurance companies whose names will be always on file in the offices of the 
company. 

The free port company is not required to accept any insurance against fire 
for a period of less than three months. It is not responsible for any losses 
which may occur by failure of an insurance company to make payment; this 
loss will be distributed among all the parties having suffered damages in pro- 
portion to their respective losses and to the total of the compensation obtained. 
Whenever insurance on merchandise is requested from the free port company 
the latter is authorized instead of the petitioner to determine the conditions 
of insurance and to eventually settle all matters between the insured parties 



102 EREE ZONES IN PORTS OE THE UNITED STATES. 

and the insurance company. The insurance will be considered valid as soon 
as the company has notified the insured party that the insurance has been 
arranged. No increase of the amount insured can be made after a request for 
insurance has once been filed with the company. 

7. Unless otherwise provided for in these regulations the company may ask 
payment in advance for any services which it may render. It is especially 
provided that whenever the company brings suit against the right of the inter- 
ested party in regard to merchandise which may have passed through the free 
port it has the right that the necessary sum for the prosecution of this suit 
be deposited with it. 

8. The company is authorized to establish the rules governing the circulation 
within the free port, admission to its building, etc., as well as to take such 
steps as may be necessary to make these rules effective. 

9. The company shall keep the regulation books for accounting purposes. 
(See especially par. 12.) 

10. The company shall prohibit all its officials, employees, or workmen to re- 
ceive under any form presents or tips in connection with their duties in the 
free port, and will see that this prohibition is duly carried out. 

11. The contracts for the lease of storerooms and sites will be drawn up in 
accordance with the forms annexed to these regulations. 

12. The lessees will be obliged to keep deposit books, in accordance with com- 
mercial rules, for the merchandise which may be deposited in the free port. 

The lessees of buildings for carrying on retail commerce and for industrial 
purposes and who may have been subject to certain restrictions at the time the 
contract was made in regard to their business in the free port, whether such 
restriction applies to the class of merchandise or to the way in which the 
same should be disposed of, are for this reason compelled to submit to the 
regulations for control which the company may adopt for the purpose of carry- 
ing out the conditions of these contracts. It is especially provided for that the 
retail merchants can only sell those articles which are exclusively used for 
the provisioning of vessels, and upon a request therefor having been received 
from the shipowner or his representative. This request, on which the receipt 
of the article must appear, will be filed in the books of the retail merchant. 

The lessees can have work carried on in the quarters leased to them by their 
own workmen who must be provided with identification plates, which the com- 
pany will furnish. When a workman stops working for one of these lessees 
he must deliver his identification plate to the lessee who will return same to 
the company. 

13. No quarters or lots, or any parts thereof, can be subleased without 
previous written consent of the company. 

14. The lessees can not use within the free port any other lights or motor 
power except that furnished by the company at a fixed rate. 

15. The company may refuse to receive articles for storage whenever there 
is sufficient cause for such refusal. 

16. The company has the right to verify by reweighing the weight of any 
merchandise as declared in the documents. In case any merchandise has been 
declared at less than its weight the company will be entitled to receive the fees 
for the undeclared weight plus the expenses which the reweighing may have 
occasioned. 

The company has also the right to open any packages or containers to verify 
whether the articles have been correctly declared. If the declaration of the 
contents appears to have been correct the company will have to bear any 
expense connected with the opening of the packages. On the other hand, if 
the declaration of the contents was incorrect the interested party will have to 
bear such expenses. 

17. For any merchandise placed in storage the company will issue at the 
request of the interested party and subject to the payment of the stamp tax, 
either a certificate of deposit and guaranty, as provided for in law No. 34 of 
March 30, 1894, or a certificate of receipt. Such certificate will be made out 
in accordance with the forms annexed thereto. 

18. At the request of the interested party the company must state in these 
certificates of deposit the amount of the expenses to which they will" be subject 
during the period indicated in the certificate, as they will appear from the 
books of the company. 

19. When such certificate of deposit has been issued for a lot of merchandise 
they may be later on returned with their respective receipts and new certifi- 
cates may be demanded on the payment of the fee of 50 ore. 



FREE ZONES IN PORTS OF THE UNITED STATES. 103 

When partial certificates are desired corresponding to a fraction of a lot of 
merchandise and for which certificates have already been issued, these cer- 
tificates may also be extended upon the payment of a fee of 50 ore for each 
new certificate, and upon condition that the older certificates be returned, 
together with their respective receipts. 

20. The company has the right to have at its own incentive and at the 
expense of the interested party carried on such work as may be necessary for 
the preservation of the stores of merchandise. 

21. Stores of merchandise will be received after the issuing of the certificate 
of deposit and guaranty, which has been issued in accordance with the rules 
laid down in the law of March 30, 1894. In the same manner they will be 
returned upon the surrender of such certificates which must have thereon a 
note canceling the certificate or be provided with a receipt signed by the 
depositor or his representative according to the forms attached to these regu- 
lations. The company may deliver samples of stores of merchandise, but 
only against the receipt thereof having been noted on the certificate of deposit, 
and in case a certificate of guaranty was issued a similar note must be made 
thereon. 

22. The depositor is personally responsible for storage expenses which may 
be incurred. Any interest which may eventually accrue from the amount de- 
posited in favor of the company and mentioned in the law of March 30, 1894 
(par. 8), will belong to the company. The company is required to liquidate 
upon request any account referring to stores of merchandise. 

23. The company will keep books in detail for every deposit made ; special 
books will be kept for the certificates of deposit and guaranties which it may 
issue and in which books the texts of the certificates will be transcribed 
literally, including all notes that may have been made thereon after their 
issuance ; all this in accordance with paragraph 7 of the law already mentioned. 

24. Whenever the balance in favor of the company for storage, transporta- 
tion, preservation, and insurance of stored merchandise will exceed three- 
fourths of the value placed thereon by experts named by the tribunal of com- 
merce and navigation, or if such merchandise or part thereof is threatened with 
deterioration, the company will have the right to sell all or part thereof within 
eight days after notice of such impending action has been published — three 
times in the Berlingske Tidende or posted at the Copenhagen Stock Exchange, 
and the interested party has been notified by registered mail at his domicile 
or place of business — that such sale will take place within eight days after the 
publication of such notice. Should there be any balance after all the claims 
affecting this merchandise have been settled, the company will turn the balance 
over to the interested parties. If this balance has not been claimed within 10 
years after the sale, it will become the property of the company. 

25. The responsibility of the company for merchandise deposited in its ware- 
houses is fixed by the law of March 30, 1890, for all cases in which a certificate 
of deposit and guaranty has been issued. 

In case the company has only issued certificate of receipt, its responsibility 
for the custody and delivery thereof will be determined by the general rules 
of the laws referring to custodianship. In this case responsibility will cease 
whenever the damage be of such a nature that it might have been discovered 
through ordinary examination, and if the interested parties had not called the 
attention of the company to the damage before removing the merchandise or 
had the same inspected legally in any other way. 

The present regulations to remain in force until further orders. 

Department of public works, October 19, 1894. 



Law Providing for a Commission to Select a Site for the Free Port in 

Lisbon, Portugal. 

[Translation.] 

In the name of the nation, the Congress of the Republic decrees and I pro- 
mulgate the following law : 

Article 1. Within the period of 60 days from the promulgation of this law 
the Government will appoint a technical commission to study the best site for 
the establishment of the free port in Lisbon. 

Having chosen the site, the commission shall elaborate a complete plan of 
the works, giving all the details. 



104 FREE ZONES IN PORTS OF THE UNITED STATES. 

Art. 2. As soon as the commission to which article 1 refers presents its work, 
and this is approved by the council of ministers, the Government will adjudicate 
by competition, announcement of which will be made 180 days before the con- 
struction and operation of the free port of Lisbon, the concession not exceeding 
60 years. 

In the free port can be loaded, unloaded, or be deposited free from duties any 
kind of merchandise except oil (olive) and wine. 

It is also permitted within the free port to perform all refining processes, 
packing, mixing of merchandise, and its transformation into other commercial 
products in factories or other commercial establishments. 

Art. 3. The adjudication to which article 2 refers shall be in accordance with 
the following stipulations : 

First. That the free port shall consist of quays, wharves for loading and 
unloading, warehouses, and all the necessary barriers for the fiscal service, 
according to the plan approved by the Government. 

Second. That the Government shall give to the concessionary the permission 
to operate and run the free port during 60 years without subvention or guaran- 
tee of interest, but ceding freely the necessary lands, if they belong to the 
State, and guaranteeing the expropriation, if the lands belong to others. 

Third. That no person or company shall be admitted to the competition who 
has not previously deposited in the " Caixa Geral dos Depositos " the sum of 
50,000 escudos (about $47,500) in cash or in bonds of the public debt according 
to market value. 

Fourth. That the concessionary must, within 15 days from the date of the 
adjudication, deposit 5 per cent of the total amount calculated as necessary for 
the works in cash or in bonds of the public debt according to market value, on 
which he shall receive the interest, if the deposit is in form of bonds, or the 
interest stipulated at the " Caixa Geral dos Depositos," if the deposit is in 
form of money. Said money deposit can not be removed until the works are 
completed and are accepted as conforming to the plan presented at the compe- 
tition. 

Fifth. That all the works and buildings will serve as a guarantee to the 
State for the exact fulfillment by the concessionary of all of the obligations 
contracted by him, in which is included the payment resulting from the expro- 
priations for public use, to which stipulation No. 2 refers. 

Sixth. That in the works Portuguese laborers shall have the preference, and 
that the period of time from the definitive signature of the contract within 
which the works must be finished and in perfect operation will be stated in the 
conditions of the competition, the concessionary paying a fine of 100 escudos 
(about $95) a day for every day elapsing from the end of the agreed-upon 
period to the completion of the works. 

Seventh. That the vessels and goods, taken as a whole, which profit by the 
free port shall continue subject to the fiscal law regarding existing free general 
warehouses. 

Eighth. That the vessels simultaneously transporting merchandise from or 
to the free port, or any other, shall enjoy the benefits of the preceding stipu- 
lation. 

Ninth. That the rates on loading, unloading, and storing shall be fixed by 
the Government in the program of the bids, and those of refining and all others 
shall be fixed by agreement between the Government and the concern under- 
taking the work, all alterations in these rates to be made only by agreement. 

Tenth. That within the inclosure of the free port night work will be per- 
mitted for coming alongside, loading, and unloading ; as a rule, however, only 
employees engaged in this kind of work and in vigilance work can pass the 
night there. 

Eleventh. That inside of the inclosure of the free port retail trade is pro- 
hibited, and no one is granted the right to consume products which have not 
come from the fiscal zone. 

Twelfth. That the concessionary must preserve the wharves, quays, ware- 
houses, and their dependencies in good condition, obligating himself to restore 
them freely to the Government at the end of the period of concession. 

Thirteenth. That the movable material, also preserved in good condition, 
shall be, when turned over to the State, paid for according to its value in 
accordance with the appraisement made by two experts appointed by the Gov- 
ernment, two by the concessionary, and one by the supreme court of justice. 

Fourteenth. That the undertaking, for all legal purposes, must be considered 
Portuguese and subject only to the jurisdiction of the Portuguese courts, all 
questions or doubts arising between the concessionary and the State concern- 



FKEE ZONES IN PORTS OF THE UNITED STATES. 105 

ing the execution of the present law and the respective regulations which shall 
be published later being, in the first place, submitted to arbitration as regulated 
by the Code of Civil Procedure. 

Fifteenth. That the gross profits of the operation, over and above the annual 
installments necessary for amortization, during the length of the concession, 
of the sum at which the execution of the works was calculated, must be divided 
equally between the Government and the concessionary. 

Sixteenth. That the award of the bids shall be based upon the rate of 
interest in relation with the annual installment referred to in the preceding 
stipulation, the concern offering the lowest rate being given the preference. 

Seventeenth. That the enterprise shall be free from all direct taxes, except- 
ing the industrial tax and the property tax, and likewise all material and 
machinery necessary to the construction of the port works shall be exempt from 
customs duties provided they are not manufactured in Portugal. 

Aet. 4. The preceding stipulations being respected, preference is based upon 
the following: 

1. The shortest number of years spent in the construction of the free port, 
in order that it be put into complete operation. 

2. The shortest number of years for the operation of the port by the conces- 
sionary. 

Art. 5. The Government has authority to regulate the hygienic conditions 
and the police dispositions which have to be observed in the installation of 
any industry within the port. 

Art. 6. The Government will make all the regulations necessary to the ful- 
filment of this law. 

Art. 7. All legislation to the contrary is hereby revoked. 

The minister of finances and of fomento order this to be printed, published, 
and circulated. 

At the palaces of the Government of the Republic, June 13, 1913. 

Manuel de Arriaga, 

Afonso Costa, 

Antonio Maria da Silva. 



Royal Decrees Providing- for Establishment of Free Ports at Cadiz, Barce- 
lona, and Bilbao, Spain. 

[Translation from Gaceta de Madrid, Sept. 24, 1914.] 

MINISTRY OF FINANCE STATEMENT OF FACTS. 

Sir : The so unexpected as well as grave crisis which modified radically the 
relations of the great European powers has not only disturbed the mercantile 
traffic between the belligerents, but also affected in a prejudicial way the 
economic development of those countries which fortunately can remain neutral. 
The dangers of navigation, the interruption of drafts by reason of the mora- 
toriums, the difficulties which shipments encounter by reason of the monetary 
problem of provisioning, the closing of important ports of consumption, transit, 
and deposit, may be said suddenly to have deprived commerce in general to a 
great extent of the advantages of modern progress. The world's commerce 
having been surprised by such enormous obstacles, efforts are being made every- 
where to find means to lessen the losses, to harmonize the exports for the 
exchange of drafts, to open a way for credit operations, and to find possibilities 
for carrying out commercial transactions. Notwithstanding the numerous diffi- 
culties which the Government had to meet both at home and on behalf of 
America, it is, nevertheless, determined to adopt without delay the steps for 
resolving, so far as possible, such important problems. 

With the cooperation of the Bank of Spain the difficulties surrounding drafts 
and soluble credits are being overcome, and in order to favor transit and ware- 
house operations the Government believes itself to be in a position provisionally 
but urgently to adopt means which may serve to attract and protect transit 
trade and assure a safe basis to credit by means of security on the deposits 
of merchandise. 

Problems of transit and of deposit of foreign merchandise are fortunately 
being studied with the concurrence of public opinion and are being debated in 
Parliament in connection with the petitions for the establishment of free zones 
and free warehouses which have been presented several years ago. The peti- 
tions for the establishment of free zones. have not yet reached a parliamentary 



106 FKEE ZONES IN PORTS OF THE UNITED STATES. 

status, but those regarding free warehouses have been brought twice to the 
attention of the Cortes (Senate and House of Representatives in Spain), one 
on October 23, 1903, and the other on June 13, 1911. 

This last project was discussed and approved by Congress and favorably- 
reported on by the Senate committee on December 7, 1912, the report remaining 
open for discussion at the closing of that legislature. 

In view of these antecedents, it is not too much to assume that the foregoing 
report has the support of public opinion and the approval of Parliament, 
manifested by the vote in Congress and by the favorable report of the Senate 
committee, and consequently the Government believes that with such a project 
as a base, in view of the pressure of the circumstances, it can authorize the 
establishment of a free warehouse in the port of Cadiz temporarily, and in 
the nature of an experiment, under reserve of amendments, as to places and 
forms which may be voted on by the Cortes, with so much more reason as the 
authorization only implies some modifications in the present system of the 
commercial warehouse which has been in operation for many years in that 
port. 

The authorization will be for the present limited to the port of Cadiz, 
because aside from the # fact of having been designated by the Chamber of 
Commerce of Habana, it possesses an appropriate building which can be used 
without delay, and because the representatives of that city have offered 
immediately to form the company which is to assume the customary responsi- 
bilities in regard to the depositors and the treasury. 

If this experiment will yield the expected results, the Government will 
continue to study the problem of free zones and support the initiative plans 
of other ports which, on account of their circumstances, claim these facilities 
for the development of their traffic. 

While it is not necessary to enumerate at present the advantages of free 
warehouses on account of their having been amply explained at the time the 
said projects of law were presented, it is proper, however, to allege as a 
justification for the urgency that at this time, when German and Belgian 
warehouses can not be operated, such free warehouses are the best means of 
attracting navigation to Spanish ports and of offering to commerce in gen- 
eral an adequate means of keeping merchandise in a safe place within easy 
reach and at the disposal of consuming ports without excessive expenses or 
waste of time or great fiscal formalities. 

Based on these considerations the undersigned minister, in agreement with 
the council of ministers, has the honor to submit for the approval of Your 
Majesty the following project of decree. 

Madrid, September 22, 1914. 

Senor : 

A. L. R. P. of Your Majesty, 

Gabino Bugallal. 



ROYAL DECREE. 

In agreement with my council of ministers, I have decreed as follows : 
Sole Article. The minister of finance is authorized to take the necessary 
steps to put into operation, with as little delay as possible, the free warehouse 
which the representatives of Cadiz propose to establish in that port, following 
as closely as possible the terms of the project of law on this subject, which 
was approved by Congress and favorably reported on by the Senate committee 
on December 7, 1912. 
Given at the palace on September 22, 1914. 

Alfon so 
The Minister of Finance, 

. Gabino Btjgallal. 



[Translation from Gaceta de Madrid, Oct. 25, 1914.] 
MINISTRY OF FINANCE — ROYAL ORDER. 

Very Illustrious Sir: Having examined the petitions presented by the 
municipal government and mayor of . Cadiz, dated September 2 and 19 last, 



FREE ZONES IN PORTS OF THE UNITED STATES. 107 

requesting that concession for a free warehouse large enough to meet actual 
conditions be authorized to said capital : ' m 

Having examined the royal decree of the 22d of September, by which, 
acceding to the foregoing petition, this ministry is authorized to put into 
operation with as little delay as possible the free warehouse which has been 
requested, and which is to conform as much as possible with the terms of the 
project of law on this matter presented to the Cortes on June 13, 1911, approved 
by Congress and favorably reported on by the Senate committee on December 
7 1912 * 

'Having examined the petition of the chamber of commerce, industry, and 
navigation of Cadiz, dated October 8, requesting that the concession be 
granted to the board of harbor works of that city with power to transfer the 
same to a mercantile corporation; that the concession should not be granted 
for any definite period, although a minimum of four years should be fixed 
for its suppression (cancellation), and that certain explanations and amplifi- 
cations in regard to the project of law be accepted by amending the same so 
that among the articles of merchandise to be deposited there be included 
leaf and manufactured tobacco ; 

Having examined the request of the board of harbor works of Cadiz dated 
October 14, accompanied by a copy of the authorization granted to it by the 
ministry of public works in compliance with a royal order of the same date, 
in which they ask that they be intrusted with the direction, administration, 
and exploitation of said free warehouse. The petition is further accompanied 
Dy plans of the lands and warehouses which it intends to establish in the 
suburb of Extramuros. It also assumes the obligation of reimbursing the 
State for any expenses the latter may incur by reason of intervention and 
surveillance of the operations of said warehouse. Further, the right is reserved 
to convey or transfer the said concession to a mercantile company, if there 
be any ; 

Considering that the project of law approved by Congress and favorably 
reported on by the Senate committee grants preference of concessions for 
free warehouses to boards of harbor works, and that the board of Cadiz, 
authorized by the ministry of public works, has complied and offers to comply 
with all the obligations contained in article 2 of said law, reserving the right 
to transfer the concession to a mercantile company which would be better 
equipped economically to develop such an important improvement, which 
request for transfer would always be subject to the condition that it be made 
to a Spanish company ; 

Considering that there exists in Cadiz at the present time a commercial ware- 
house operated by the treasury in accordance with the provisions of section 3, 
chapter 7, of the customs ordinances, and that the plan now being considered 
for the establishment of a free warehouse would involve merely an enlarge- 
ment of the powers of the existing commercial warehouse in order to grant 
better facilities; 

And considering that, while the requests for the admission into the free 
warehouse of leaf and manufactured tobacco, subject to guaranties necessary 
to protect the treasury, may be given consideration, no steps can be taken at 
present to amplify the operations of transformation of merchandise which 
should be the object of more detailed study, it being obligatory that they con- 
form in reference to this important point to the provisions of the law reported 
on by the Senate committee : 

The King (q. D. g. — whom God may guard), in agreement with the proposals 
of this general office, has decreed as follows : 

First. That the petition presented by the Cadiz board of harbor works be 
granted, and that in virtue thereof there is authorized the establishment of 
a free warehouse on the land and in the buildings that have been offered; 
an examination of. the latter is to be made to determine the repairs and 
changes which may be necessary to put them into a safe condition. 

Second. All foreign merchandise now being admitted in the Government's 
warehouse in said port shall also be admitted into the free warehouse, as well as 
leaf and manufactured tobacco and Spanish merchandise, the export of which is 
permitted. The latter merchandise will lose its nationality upon entering the 
warehouse and be treated the same as goods of foreign origin. Packages con- 
taining foreign tobacco will be sealed on arrival at the warehouse and no change 
of wrappers nor division of their contents will be granted except when exclu- 
sively destined for the concessionary company or for export. 



108 FREE ZONES IN PORTS OF THE UNITED STATES. 

Third. No merchandise can remain in the warehouse for a period exceeding 
four years. At the expiration of this time it shall he exported or entered for 
consumption in Spain. 

Fourth. The following operations shall be permitted in the warehouse, under 
the surveillance of the administration and of the representatives of the cham- 
bers of commerce which may request it, whenever an offer is made to assume 
the expense of such surveillance : 

(a) Changing the containers of merchandise. 

(&) Dividing merchandise into commercial grades. 

(c) Mixing one with another to obtain commercial grades. 

(d) Shelling and roasting of coffee and cocoa. 

(e) Tanning of hides. 

if) Pulverization of woods. 
(g) Washing of wool. 

(ft) Extraction of oil from copra and from oleaginous seeds. 

(i) All operations tending to increase the value of the merchandise in deposit 
without essentially changing its nature. 

The Government may amplify the operations for transformation of mer- 
chandise referred to in the preceding paragraph after publishing the request 
for such changes in the Gaceta de Madrid and in the Boletin Official of the 
Province of Cadiz, so that any claims against such changes may be filed within 
one month. Such claims will be acted upon by the Government within 60 days, 
and failure to make a decision within that time will automatically approve the 
petition. 

Fifth. Domestic as well as foreign merchandise entering the free warehouse 
will be exempt of the payment of transport tax and dues for port works col- 
lected in the port, as well as of any other Government, provincial, or munici- 
pal tax, and only merchandise entering into consumption can be taxed. 

Foreign merchandise which is reexported from the free warehouse shall also 
be exempt from such imports and excise taxes. Domestic merchandise to be 
exported will pay the transport tax and dues for port works they would have 
had to pay in case of direct exportation without entering the warehouse. The 
export duties will also be collected on all merchandise subject thereto. 

Sixth. Merchandise originating in the free warehouse upon entry into Spain 
will pay import and transportation duties and other charges, as if they had 
been imported directly from abroad, and will be subject to the rules governing 
importation as set forth in the tariff law and customs ordinances. 

Seventh. The State will not guarantee the duration of the free warehouse, 
but while it is in existence the merchandise stored therein will be protected 
by the laws and will never be subject to reprisals, not even in case of war 
with the countries of which the owners, senders, or consignees of said mer- 
chandise may be natives. 

Eighth. The concession is not granted for any limited time, and the board 
of harbor works may propose and this ministry may convey at any time the 
exploitation of the free warehouse to another Spanish commercial company 
which would offer sufficient guaranty to fulfill all the conditions which the 
management of the warehouse requires. 

Ninth. The board of harbor works may ask for the cancellation of its con- 
cession of the free warehouse upon showing that it brings no results or that 
these results are prejudicial to its interests. 

If the warehouse was being exploited by a commercial company, as set forth 
in the preceding article, this company may also propose the cancellation of the 
concession by giving its reasons for such request, but the Government before 
agreeing to such action will submit the request to the board of harbor works 
for it to decide whether it would again take charge of the warehouse. The 
Government may suppress the free warehouse of its own initiative, if it is 
shown that such action would be to the interests of the country. From the 
date on which the suppression of the warehouse should be agreed upon, no 
merchandise other than that which prior thereto had left its place of origin 
shall be admitted therein, but those already stored therein may remain there 
until they shall have remained therein for a period of four years. In this 
case the Government shall take charge of the storerooms and equipment for 
the period during which such merchandise may remain in the warehouse, with- 
out thereby giving to the owners of such merchandise a right to a larger 
indemnity than the amount which may be collected through the tariffs in force 
in such free warehouse. 



FREE ZONES IN PORTS OF THE UNITED STATES. 109 

Tenth. The board of harbor works or the mercantile company in charge of 
the operation of the free warehouse may issue warrants or certificates of mer- 
chandise which may be negotiated at the banks, in accordance with the pro- 
visions of the article of the Code of Commerce on this subject. 

Eleventh. All the laws, regulations, and treaties in force in regard to indus- 
trial property, trade-marks, patents of inventions, and commercial names will 
be in force in the warehouse as well as all other provisions of by-laws, inasmuch 
as the latter do not conflict with the limited precepts of this royal order. 

Twelfth. It is prohibited to reside, consume, or sell at retail within the 
boundaries of the free warehouse. An exception is made in the case of agents 
charged with the surveillance and of the personnel which is deemed indis- 
pensable for its safe-keeping and custody and the families of the same. 

Thirteenth. Permission to enter into the free warehouse is granted to the 
owners and consignees of the merchandise to such part as they may be entitled 
to, to customs employees, and to revenue agents designated by the latter, to 
employees of the concessionary company, and to . duly authorized representa- 
tives of the chambers of commerce. 

Fourteenth. The company enjoying the concession of the free warehouse will 
reimburse the State for all expenses caused the latter for its intervention and 
surveillance of said warehouse, the amount of these expenses to be determined 
at the proper "time. Failure to pay for four alternatives or successive quarters 
will carry with it, ipso facto, the annulment of the concession, provided a re- 
quest for payment has been made to the debtor company and without depriv- 
ing the Government of the right to recover this debt by judicial proceedings. 

Fifteenth. The merchandise now stored in the existing commercial ware- 
house of Cadiz may be transferred to the free warehouse at the request of its 
owners at the expiration of the term for which storage charges have been paid. 
It may also be transferred sooner, but in this case its owners would not be 
entitled to a return of any sum paid for storage. 

Sixteenth. The board of harbor works will present to this ministry as soon 
as possible the tariff schedules which are to be applied to the various opera- 
tions to be carried on in the warehouse, as well as the regulations which are 
to be observed in its interior management. 

Seventeenth. This general office will take such steps as may be pertinent for 
the proper intervention and surveillance of the free warehouse. 

By royal order, I transmit these presents to your excellency for your knowl- 
edge and action. May God guard your excellency for many years. 

Madrid, October 22, 1914. 

BUGALLAL. 

Sir Director General oe Customs. 



[Translation from Gaceta de Madrid, Oct. 25, 1916.] 
MINISTRY OF FINANCE — STATEMENT OF FACTS. 

Sir : It behooves the Government at this highly important historical moment 
to assure, by all means within its reach, that Spanish economic life be provided 
with all the elements that may strengthen its power and increase the develop- 
ment of our mercantile and industrial forces. 

In addition to the measures already submitted to the Cortes with the permis- 
sion of Your Majesty, there is the decree which is to-day submitted for your 
royal signature by the undersigned minister. 

It begins by granting the concession of the commercial warehouse (bonded) 
in the port of Barcelona to a company constituted in the form requested by the 
mayor-president of the municipality of that great city and the representatives 
of the department of public works. 

There certainly do not exist any fundamental reasons which may be alleged 
against turning over to the vital forces of Barcelona the carrying out of this 
patriotic undertaking, not even in regard to intervention of its municipal govern- 
ment, because the contemporaneous movement in favor of municipal ownership 
of great public utilities and the same tendencies of Spanish legislation main- 
tained by all the Governments favor the idea of this concession, which, in the 
form in which it is granted, involves a character of public convenience and of 
:imple social solidarity for an experiment in Spain of a system by which only 
the longed-for efficiency may be obtained. 



110 FREE ZONES IN PORTS OF THE UNITED STATES. 

In any case, the guaranties which surround the concession and exercise of 
high tutelage and of special safeguard of the general interests and of the spe- 
cial interests of the treasury, which are intrusted to the ministry of finance, 
exclude the possibility of any damage or perturbations which otherwise may 
have been alleged or feared by timid elements. 

In view of the above statements, Your Majesty's Government may deign to 
grant complete satisfaction to long-cherished aspirations of the municipal gov- 
ernment and of the economic entities of Barcelona, assuring thereby the 
progress of its rich resources and, in general, the glory and prosperity of Spain, 
which is interested to have at its disposal on the day of universal peace a pow- 
erful element of interchange and of mercantile navigation in the Mediterranean 
Sea. 

And in virtue thereof, the undersigned minister submits to Your Majesty the 
following draft of a decree. 

Madrid, October 24, 1916. 

Sir: 

A. L. R. P. of Your Majesty, 

Santiago Axba. 



EOYAL DECREE. 

On the proposal of the minister of finance and in agreement with my council 
of ministers, I have decreed the following : 

Article 1. The concession for a commercial warehouse in Barcelona is au- 
thorized to a company constituted as follows : The municipal government of 
said capital as representing the city ; the presidents or delegates of the follow- 
ing corporations : Department of public works, board of port works, the Cata- 
lan Agricultural Institution of San Isidro, official chambers of commerce, navi- 
gation and industry, and a representation of the labor associations dealing 
especially with maritime undertakings. 

Art. 2. The company referred to in the preceding article shall submit to the 
ministry of finance, within the period of one year from the dace of this decree, 
the following: 

A. The plans and an explanatory statement of the organization to be estab- 
lished in the warehouse, as well as its location within the port. 

B. Statement of the operations which the company intends to carry on 
therein, and a schedule of the duties to be applied to each of them. ' 

C. Agreement, executed in legal form, recognizing specifically the obliga- 
tion to reimburse the State for the expenses which it may incur by its inter- 
vention and surveillance of the warehouse. The settlement of these expenses 
will be quarterly. Failure to pay for four alternative or successive quarters, 
after demand for payment has been made of the company, will result in the 
cancellation of the concession. 

The minister of finance, after such investigation as he may deem necessary, 
will determine the character of the operations and duties to be authorized and 
likewise decide upon any other points contained in the petition or petitions of 
the company and which he may consider essential for the safeguarding of the 
public interests and the resources of the treasury. 

Art. 3. The concessionary company will have authority to issue such bonds 
or certificates of credit as it may deem necessary, and to lease one or more of 
the utilities to any mercantile concern, all such acts subject to the authority of 
the minister of finance. 

Art. 4. All resolutions which may hereafter be taken for the execution of the 
present decree and the establishment and development of the commercial ware- 
house of the port of Barcelona shall be published in the Gaceta de Madrid, so 
that within the period of 30 days from the date of such publication the claims 
may be filed by any entities or individuals who may consider themselves 
prejudiced by the resolution taken. 

The council of ministers, at the instance of the minister of finance, will pass 
upon any such claim, and their decision will likewise be published in the Gaceta 
de Madrid. 

Art. 5. For every matter not specially regulated by this decree in regard to 
the commercial warehouse in Barcelona there will be applicable, first, the 
royal decree of September 22, 1914, and its supplementary amendments. 



FREE ZONES IN PORTS OF THE UNITED STATES. Ill 

Art. 6. The minister of finance, after hearing the board of directors of the 
company and having the report of the council of state, will issue the necessary- 
regulations for the management and operation of the new commercial ware- 
house. 

Given at the palace on October 24, 1916. 

Alfonso. 
The secretary of finance, 
Santiago Alba. 



MINISTRY OF THE TREASURY A ROYAL DECREE. 

At the proposal of the ministry of the treasury and in accordance with the 
council of ministers I issue the following decree : 

Article 1. A free depot is allowed in Bilbao to a consortium, which will be 
formed of the provincial presidents and delegates of Vizcaya, of the official 
chamber of commerce, industry, and navigation, and of the council of labor of 
the port mentioned. 

Art. 2. In the said depot all merchandise will be admitted, and such opera- 
tions will be authorized as are permitted and authorized in the depot of Cadiz, 
in accordance with the royal decree of concession of October 22, 1914. 

Art. 3. The consortium shall present before the expiration of a year from the 
date of this decree to the minister of the treasury : 

(a) The statutes, regulations, plans of the land and buildings, and an ex- 
planatory memorandum of the organization and the establishment of such 
depot ; 

(&) Report of the operations proposed by the consortium' and the tariffs 
applicable in each case; and 

(c) A resolution, legally executed, expressly recognizing the obligation to 
reimburse the State for such expenditures as may be occasioned by the inter- 
vention and guarding of the depot. The liquidation of the reintegration of 
these expenditures shall be made quarterly. Default of four quarterly pay- 
ments, alternate or successive, will cause the cancellation of the concession, 
previous to the payment of the payment of the partnership consortium. 

Art. 4. The concessionary consortium shall be empowered to issue such bonds 
or credits as it may deem proper and to lease one or more of its services to a 
mercantile organization, always subject to the authorization of the ministry of 
the treasury. 

Art. 5. All the resolutions that may be dictated for the execution of this 
decree and the foundation and expansion of the free depot of Bilbao shall be 
published in the Gaceta de Madrid so that within the period of thirty days 
from the date of such publication allegation of such rights, wholly or in part, 
which are considered affected in some manner by the resolution agreed upon, 
may be made. 

The council of ministers, at the instance of the ministry of the treasury, 
will decide in each case the foregoing, and its decision likewise published in 
the Gaceta de Madrid. 

Art. 6. To all that which is not regulated by this decree in regard to the free 
depot in Bilbao, the royal decrees of September 22, 1914, and October 24, 1916, 
in regard to the concession of those of Cadiz and Barcelona, and their final 
disposition, shall be applicable. 

Given at Santander the 30th of July, 1918. 

Alfonso. 

The minister of the treasury, 
Augusto Gonzalez Besada. 



Bill Providing for the Establishment of Free Zones in French Maritime 

Ports. 

[Translation.] 
Ministry for foreign affairs. — French Republic. 

America — United States : Re information concerning the free ports and zones 

of France. 

The ministry for foreign affairs presents its compliments to the American 
Embassy at Paris and, referring to its note of the 9th of this month, has the 
honor to communicate below the information furnished by the ministry of com- 
merce concerning the free ports and free zones of France. 



112 FKEE ZONES IN PORTS OF THE UNITED STATES. 

As the foreign office has already had occasion to inform his excellency, Mr. 
Sharp, if there exist in Prance no ports enjoying the system known by the 
name of free zones and free ports, the question of the organization of this sys- 
tem has none the less formed the object of several projects due to parlia- 
mentary or governmental initiative. Special mention should be made in this 
connection of the following: 

The bill of Messrs. Bergeon and Chevillon laid before the Chamber of 
Deputies on July 10, 1914. 

The question, which was again raised at the time of the discussion in the 
Chamber of Deputies of the bill which resulted in the law of December 29, 
1917, on the system of warehouses, has received no solution. 

The ministry for foreign affairs, in annexing the latter document to the 
present note, deems it well also to join a volume published in 1912 by the min- 
istry of commerce and which contains information concerning the organization 
and working of the commercial maritime ports of France. 

Paris, September 23, 1918. 

[Translation.] 

No. 343. — Chamber of Deputies, Eleventh Legislature, session of 1914. 
Appendix to the minutes of the second sitting of July 10, 1914. 

Bill providing for the establishment of free zones in maritime ports. 

(Referred to the commission committee on commerce and industry.) 

Introduced by Messrs. Bergeon, Lenoir, Candace, Blile-Favre (Haute-Savoie), Lefol, 
Diagne, Auguste Girard (Bouches-du-Rhone), Chevillon, deputies. 

PURPOSES OF THE BILL. 

Gentlemen : The draft of a law providing for the creation of free zones in 
French maritime ports which appeared to be on the point of being enacted into 
law during the Ninth Legislature was tabled for two different reasons. 
One was to postpone the discussion of the question of free zones to coincide 
with the date on which the chamber would take up for debate the customs law 
of March 29, 1910. The second reason was a resolution which had been intro- 
duced providing for the expansion of the bonded-warehouse system. This proj- 
ect of expansion which for the last four years has been under investigation 
by an extraparliamentary committee has not as yet been referred to either of 
the two chambers. 

Furthermore, the system of warehouses (no matter how liberal our views 
may be on the subject) will never grant the same facilities as free zones freed 
from all formalities. The merchant desires to be able to operate freely, which 
is something he can not do in a warehouse where he is under obligation to deal 
with a personnel not under his control. 

Therefore, even if the system of warehouses should be greatly improved that 
would not be an argument against recourse to the more modern institution of 
free zones. 

Bonded warehouses and free zones both have their advantages and both can 
be maintained at one and the same time. 

In Germany, for example, where bonded warehouses are managed in an 
infinitely more liberal manner than in our country, it is perfectly understood 
that they do not preclude the maintenance of free ports and free zones, and the 
coexistence of both of them has given and does give uniformly excellent results. 

It would be strange if France refused to make a trial of a free institution 
which is considered everywhere else as a pillar of support to the protectionist 
system. The purpose of the latter being to increase prices on the domestic 
market, a country subject to this system could not successfully continue to take 
part in international trade unless it reserved in its principal ports certain areas 
where foreign merchandise could be received free of duty in order -to be re- 
exported later. 

Other countries have already set us the example : In addition to ports situated 
in countries with liberal customs policies, such as London, Liverpool, Antwerp, 
Rotterdam, it is to be noted that Hamburg, Copenhagen, Genoa, Trieste, Fiume 



FEEE ZONES IN PORTS OF THE UNITED STATES. 113 

have all been provided with free zones, and since the beginning of the century 
not only has none of these establishments been discontinued, but projects are 
now under consideration for establishing free ports at Salonica and at Alex- 
andria. Thus around us the number of foreign ports which enjoy these facili- 
ties is on the increase, and the French ports which continue to be without these 
facilities are in a very disadvantageous position to provide freight for our 
merchant marine and to withstand the competition of their rivals in inter- 
national trade. 

It is possible and it is highly desirable to increase the traffic of our ports; 
this can be done by establishing free zones which will become manufacturing 
and industrial centers. It is time to give full consideration to and to act upon 
this project. 

Such are the reasons which move us to urge upon our colleagues the enact- 
ment of the draft bill which follows : 

BILL. 

Article 1. In the cities possessing free ports it shall be lawful, after a decree 
has been rendered upon investigation by the council of state, to admit mer- 
chandise, during a period of 99 years, free of all customs duties and internal 
consumption taxes, into any part of the port and its adjacent territories. 

The decree cited above may not be promulgated except upon the demand of 
the chamber of commerce, which shall have been passed upon by the municipal 
council. 

Art. 2. The portions of the public domain included in the free zone remain 
subject, in each matter which concerns them, to the appropriate authority. 

The lands under the control of the public maritime domain, which will be 
recognized as essential to the operation of the free zone in order to establish 
thereon stores and warehouses, may be assigned to the chamber of commerce 
by decree of the council of state. 

Further decrees may sanction the acquisition by the chamber of commerce of 
areas outside the public domain which are useful for the effective exploitation 
of the free zone by declaring them of public utility. 

The procedure for the expropriation of such area shall follow the form pre- 
scribed by the law of May 3, 1841. 

Art. 3. The proprietors of the areas comprised within the boundaries of the 
free zone may declare to the prefecture, within one month after the receipt of 
notice from the chamber of commerce, that they agree to abandon the said 
areas after indemnification. The indemnity to be paid by the chamber of com- 
merce shall be fixed in accordance with the law of May 3, 1841. 

In cases of property belonging to feeble-minded (incapables), to departments, 
communities, public institutions, or to the State, which is to be included within 
the boundaries of the free zone, this liquidation shall take place in accordance 
with the provisions of paragraphs 3 and 4 of article 6 of the law of December 
22, 1888. 

Art. 4. The chamber of commerce shall establish stores, sheds, railways, and 
the equipment necessary for the maintenance, transportation, or storage of 
merchandise upon the lands belonging to it or ceded to it by the State. It shall 
bear all the expenses necessary for this organization ; it shall also defray the 
expenses for the surveillance of the free zone caused to the customs adminis- 
tratiton. 

To indemnify the chamber of commerce for these expenses, it shall be author- 
ized, if necessary, to collect certain tolls under the conditions fixed by the laws 
of April 9, 1898. and April 7, 1902, and fees for storage, maintenance, and trans- 
portation, according to tariffs established by the minister of commerce, upon 
the advice of the municipal council and the minister of public works. 

In case of the discontinuance of the free zone, the lands, buildings, and equip- 
ment belonging to the chamber of commerce and which would not be needed by 
it in its work, will be sold or leased and the proceeds of such sales or leases 
will be applied toward the cancellation of debts or loans contracted by the 
chamber of commerce in connection with the establishment of the free zone. 

The surplus, if any, will be remitted to the State, which should use the same 
for executing or completing port works in agreement with the chamber of 
commerce. 

140955—19 8 



114 FKEE ZONES IN PORTS OF THE UNITED STATES. 

Art. 5. The chamber of commerce is authorized to grant temporarily the use 
of its land to individuals or to companies which will undertake the construction 
and maintenance of the buildings and equipment provided for in paragraph 1, 
article 4. 

The concession is obligatory in case it refers to an industry, the establishment 
of which is authorized in the free zone. 

These concessions are approved by the minister of commerce upon the advice 
of the minister of public works. They can only be granted to Frenchmen or to 
companies having as directors or managers a majority of French citizens or of 
foreigners authorized to take up their residence in France. 

Art. 6. There shall be allowed in the free zone all operations tending to pre- 
serve merchandise, sorting, blending, or otherwise manipulating the same ; the 
manufacture of matches, and the further manufacturing of foreign tobacco. 

There may also be authorized, by decree issued upon advice of the consulting 
committee of arts and manufactures, new and extinct industries whenever it 
shall have been nroven that on the date of the petition of the interested party 
there does not exist any identical or similar industry upon the customhouse 
territory. 

Art. 7. Entry into free zones will be prohibited to merchandise originating in 
any country affected by any epidemic, such as come under the laws and regula- 
tions of the sanitary police ; all products referred to in article 16 of the law of 
January 11, 1892; powder, arms, and ammunition, saccharine and its by- 
products, and printed matter in violation of copyright laws. 

Art. 8. It is prohibited to reside within the free zone or to consume and sell at 
retail therein, except as provided for in paragraph 3 of article 10. 

It is also prohibited to convey or to rent any space or building to persons or 
to companies who do not meet the conditions provided for in paragraph 2 of 
article 5. 

Art. 9. All merchandise leaving the free zone to enter into domestic consump- 
tion will be subject to the duties of the general tariff and to the surtaxes 
specified in the law of January 11, 1892. 

However, all such merchandise for which there shall be furnished to the cus- 
toms administration the proofs necessary to establish their origin and the con- 
ditions under which they are transported will be taxed according to reduced 
schedule, which may be applied to it under the general customs laws. 
- Domestic or nationalized merchandise entering into the free zone from the 
customs territory will not be subject to any duties on reentering for domestic 
consumption, provided its origin has been duly proven. 

Art. 10. The decree establishing the free zone will determine : 

First. The boundaries of the zone, the method of in closure, and the means of 
surveillance. 

Second. The proofs that will be necessary to exempt merchandise from the 
general customs tariff and surtaxes provided for in article 9. 

Third. The exceptions which may be alleged to the provisions of article 8 in 
favor of the agents charged with the surveillance of the zone and of the per- 
sonnel working within its boundaries. Only such merchandise on which the 
fiscal taxes have been paid can enter into consumption. 

Fourth. The marks, designations, or distinctive signs necessary to identify 
the products leaving the free zone from similar products of French origin. 

Especially when wines or brandies are shipped from the free zone, the barrels 
and cases should be marked with indelible characters " free zone." 

Fifth. Finally, it must provide for the approval of any other expenses neces- 
sary to assure the exploitation of the free zone. 

Art. 11. Any person who shall have violated or attempted to violate the pro- 
visions of articles 6, 7, and 8 of the present law will be punished with a fine 
ranging from 300 to 5,000 francs. In case of second offense, this fine may be 
doubled. The products and merchandise will be confiscated. 

'These violations will be considered as customhouse matters and prosecuted 
rbefore criminal courts, either at the instance of the district attorney or at the 
request of the customhouse authorities. 

Art. 12. There remains in force and will be applied wihin the free zone the 
laws of July 28, 1824, referring to alterations or substitutions of trade names ; 
the law of June 23, 1857, referring to trade and business marks; the law of 
November 26, 1873, referring to stamps or designs on these trade-marks; the 
treaties and international agreements for the protection of industrial property ; 
and, finally, all the provisions of laws or rules in force in maritime ports, 
inasmuch as they do not conflict with the present law. 



FREE ZONES IN PORTS OF THE UNITED STATES. 115 

Furthermore, there is prohibited in the free zone : 

1. The placing on the foreign products, either in whole or in part, whether 
they be raw or manufactured, or upon their wrappings, labels, or other marks 
of identification, or upon printed forms or any writing attached thereto, of any 
sign, designation, or indication which would lead to belief that the said product 
orignated entirely in French territory or in the territory of a French colony or 
possession. 

2. The use of any sign, or designation, or indication above referred to, and 
of every sale or placing on sale of the above-mentioned products bearing such 
signs, designations, or indications. 

The seizure of such illicit articles will be made in accordance with article 19 
of the law of June 23, 1857. 

Any violation of these provisions will be punished with a fine ranging from 50 
to 2,000 francs, and with imprisonment of one month to one year or with either 
of these penalties only. 

Akt. 13. Article 463 of the Penal Code is applicable to the infractions defined 
;by the present law. 

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